Hungerfords (Registered Firm) & Ors v Walker

[1988] HCATrans 178

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A8 of 1988

B e t w e e n -

HUNGERFORDS (Registered Firm),

HUNGERFORD SPOONER AND KIRKHOPE

(Registered Firm) and HUNGERFORD

HANCOCK AND OFFNER (Registered Firm)

Appellants·

and

PETER VICTOR WALKER, BARRY JOHN WALKER,

MICHAEL TIMOTHY WALKER, DOROTHY ROSE

WALKER and DIANE MARY WALKER (Trading

as "RADIO ELECTRIX")

Respondents

MASON CJ

WILSON J

BRENNAN J

Hungerfords(2)

DEANE J

DAWSON J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON TUESDAY, 23 AUGUST 1988, AT 11.21 AM

Copyright in the High Court of Australia

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MR D.M.J. BENNETT, QC:_ May it please the Court, in this

matter I appear with my learned friend, MR R.J. BAXTER,

for the appellants. (instructed by Johnsons)

MR T.A. GRAY, QC:  May it please the Court, I appear with my

learned friend, MR S.J. LIPMAN, for the respondents.

(instructed by Thomson Simmons & Co)

MASON CJ:  Yes, Mr Bennett?

MR BENNETT: If Your Honour pleases, I hand up an outline

of submissions. Your Honours, I propose,

firstly, to show Your Honours by reference to

the facts how the five areas of appeal arise
and then to go through them in order as shown

in the submissions.

Your Honours, the facts were very simple

so far as they are relevant. There were six

partners, three husbands and three wives, who

carried on business. My clients were their

auditors and accountants. There was negligence

in the preparation of income tax returns which

resulted in overpayments of income tax over

a period of about six years. It related to

the calculation of depreciation and it had a

cumulating effect.

When the mistake was discovered the tax over the most recent three years was recovered

from the commissioner but there is no power

under the legislation to go back beyond three

years and damages were sought from my clients

in relation to the first three years.

The amount of tax overpaid was therefore

18 items of income tax, 6 partners in each of

three years. The total of those 18 amounts

was around $47,000, making an average of about

$2600 each for those 18 amounts. In fact, they

varied between about $1000 and about $4300.

Thus far there is no dispute so far as this

Court is concerned.

The amounts of tax were paid, although

they related to the individuals, by the partnership.
That arose in this way: the partners used the
partnership account as their banker in the sense
that they all had loan accounts with the partnership

which were at :all material times, with one exception,

always in credit both before and after the tax

payments. So they had, in effect, advanced

moneys to the partnership and when the partnership

paid their income tax in the normal way, it

simply debited their respective loan accounts.

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The partnership also had a number of debts which

it owed to outside financiers:  one of those

was Mutual Acceptance from whom it had borrowed

money over virtually the whole period of its

existence in increasing amounts. Mutual Acceptance

charged a very high rate of interest - at the

relevant times it was around 18 per cent and

higher. What was said in the plaintiff's case

was that because of the additional 18 amounts

totalling $47,000, the partnership had less

money at the time. Had it had that money it

would have used it, in part, to retire the debt of Mutual Acceptance, therefore interest should

be allowed compounding at the highest rates

of interest being paid to that company.

The trial judge rejected that argument

for a number of reasons. He said, firstly,

he was not satisfied that all the money would

have been paid by the partners or allowed by

the partners to the partnerhsip and, secondly,

he was not satisfied that all the money would

have been paid by the partnership to Mutual

Acceptance. He held that the suggestion that

it would have been was very natural reconstruction

years later and, in the result, he allowed 10 per

cent overall, over the period. The total verdict

he awarded was $145,000 which involved that

10 per cent calculation plus a few smaller items
for investigation costs.

The Full Court held firstly that it would make an allowance of 20 per cent for the amount

that the.partners might nevertheless have taken

out of the business - in other words it should
not be assumed that the whole of the additional

tax would have been money that the partners

would have left in the business; he ' then

made no allowance at all for the possibility

that the higher rate of interest should not

be applied. The Full Court's ,reasoning was

that although it was not completely satisfied

that the amount would have been paid to Mutual

Acceptance, nevertheless the business acumen

of the partners was such that an inference could

be drawn that they would have either paid Mutual

Acceptance or been earning at least that rate

of interest - otherwise they would have paid

it.

On the basis of that inference the higher

rate of interest of the 18 and higher was allowed

and it was allowed compounding and the result

was a total verdict in the order of $330,000.

The appellant's case here is that that reasoning

was incorrect.

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We raise five issues in this Court although

their relationship is such that there are really

only three. The first issue is the major issue of law and the issue of real importance in this case, and that is the question of whether a

person causing financial loss to another by

negligence is liable for further consequential

loss caused by that initial financial loss.

That can be put in different ways but the ultimate question is the way I formulated it. That involves

a number of issues which I will take Your Honours

to. The second related issue is the effect

of impecuniosity, the extent to which a person

who is obliged to borrow at high rates of interest

is thereby entitled to claim by analogy to the

thin skull cases that he obtains a higher rate

o damages and we will be relying on the LIESBOSCH

case in relation to that issue.

The third and fourth issues are the short factual ones, they will not take long. The

first is the question of whether the interference

by the Full Court with the findings of the trial

judge in relation to what would have been done

with additional funds was a permissible line

of reasoning for an appeallate court and, secondly,

whether there was, in any event, any direct

causation between the loss and the damage bearing

in mind that the partnership chose to pay the

individuals' tax liabilities.

Finally, the final issue is unrelated to

any of the others, it is a very short issue.

That arose in this way: in 1981 to 1982 the

business of the partnership was taken over by

a company incorporated for that purpose. The
company, apparently, took over assets and liabilities

from the partners and took over the loan from

Mutual Acceptance. A significant part of the

damages relates to damage suffered by the company

because of the higher interest rates it had

to pay Mutual Acceptance after that date. The

evidence was that the company operates as under

a trust; there was no evidence whether it was

a discretionary trust or a: unit trust and that

the beneficiaries were the six partners and

their seven children. We will be submitting

in that situation one cannot simply do what

both courts did, which is just lift the corporate

veil and say, "The loss of the company was really

their loss". That is the final issue.

On the first issue, damages for non-payment

of money, the problem to which this relates

can arise in a number of ways. It can arise

.on simple non-payment of a debt where a person

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Hun~erfords(2)

suffers damage due to non-payment of a debt. It

can arise due to non-payment of damages where
a person would be able to do things if the damages

were paid immediately but is not because damages

are delayed. And it can arise, thirdly, where

one inflicts financial loss and there is a continuing

consequential financial loss until the initial

financial loss is rectified. Those situations

require a slightly different legal analysis

although the cases which discuss them tend to

do so in global terms.

As Your Honours are aware, there has been,

since fairly early times, legislation in England

and throughout Australia under which interest

can be recoverable, can be ordered by courts,

on liquidated claims. The legislation has taken

various forms from time to time. The current

South Australian legislation is in the wide

form which seems now to be traditional and I

hand up to Your Honours copies of section 30c

of the South Australian SUPREME COURT ACT which

is the relevant legislation.

Your Honours will see this deals with both

liquidated and unliquidated claims. It says:

Unless good cause is shown to the

contrary, the court shall, upon the application

of a party in favour of whom a judgment

for the payment of damages, compensation

or any other pecuniary amount -

and, as Your Honours will see, that includes

liquidated claims -

has been, or is to be, pronounced, include

in the judgment an award of interest .....

(2) The interest -

interest as may be fixed by the court - (a) shall be calculated at such rate of

and what happens here, as elsewhere in Australia

is that as interest rates vary the court passes

a rule of court fixing a rate for the particular

period.	On an unliquidated claim it runs from
the date of commencement of proceedings;	on
a liquidated claim it runs from the date on
which the liability arose -

(c) shall be payable in respect of the

whole or any part of the amount -

and then the court may -

award a lump sum in lieu of that interest.

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(4) This section does not -

(a) authorize the award of interest upon

interest -

which one assumes means compound interest, and it

does not -

(ab) authorize the award of interest upon

exemplary or punitive damages -

and there are various other minor matters.

It does not affect certain other common law

rules.

There were always, of course, special rules

in equity and there were special rules in admiralty

governing interest of this type. The problems

that are raised are the policy problems tending

to be common to the three areas although the

logical problems, in so far as one bases a rule

on legal reasoning, are quite different in the

three areas. But the central policy problem

is this: if one has in every case, or even

in every case where financial loss is inflicted

on another, to calculate not merely that loss

but the consequences of that loss on the individual
bearing in mind what he would have done had

the loss been inflicted - or, in the case of

liquidated damages, what he would have done

if the debt had been paid on time - the inquiry

is going to necessarily be a trial within a

trial which will often be expensive, difficult

and fairly erratic in its result.

I say "erratic in its result" because when

a man goes in the box and says, "If I had had that money I would have done X with it", the

issue of credibility becomes a very difficult

one indeed. This case is a very good example.

His Honour found that the respondents·' witnesses

were honest and doing their best to tell the

truth but he did not accept their views expressed
in the witness box as to what they would have

done with the money. That is a very real problem and it is one which, in our respectful submission,

as a matter of policy it is desirable to avoid.

When one considers the position of almost

any injured party who is asked by his solicitors,

"Well, what would you have done?" it is very
hard for anyone, one would have thought, applying

himself with the utmost honesty to the situation,

to work out with hindsight what he is likely

to have done. He is hardly likely to say, if

the stock exchange crash has intervened, to

say he would have invested in shares.

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There are real difficulties, we would submit,

in that area and, in particular, difficulties
in relation to length and extensions of hearings.

This case is a good example of that, too.	The
case ran for some time;	a large part of it

was devoted to this aspect and a book was prepared

and exhibited - which is not, Your Honours will

be glad to hear, part of the appeal book - but

which was a large, fat volume of calculations
and relevant tax documents and documents showing
how the loss was made out. Accountants were

called to prove it and examined and cross-examined. In our respectful submission, when one

is working out a rule of policy, that consideration
is an important one, bearing in mind it arises

in some form or another in a very large number

of cases. The second aspect is that there are

logical problems as to how one characterizes

this type of loss. I have referred to three

areas: the infliction of financial loss, liquidated

damages and unliquidated damages, but the lines

between those may be somewhat blurred and perhaps

the best illustration of that is the passage
in the dissenting judgment of Sir John Latham

in MARINE BOARD OF LAUNCESTON V MINISTER OF STATE FOR THE NAVY, 70 CLR 518. That was a

case on section 52(xxxi) of the CONSTITUTION

and the question was, "In awarding just terms

does one award interest?" The majority held

that one did under particular regulations;

the minority held that one did not. It is interesting

that the majority all took the view that they

were applying the equitable rule. The ratio

of the majority was that in compensation cases

it is appropriate to apply the equitable measure

of damages, which includes interest, whereas

the ratio of the minority was that it is appropriate

to apply a common law measure of damages which

did not allow interest.

In discussisng what the common law rule

was, the Chief Justice set out the principles

in a way which is frequently cited and which

is useful to refer to. It is a passage at page 525

of the report, starting at the top of the page;

where His Honour says:

The rule of English law is that, in

general, interest is not payable by reason

of delay in the payment of money due.

There may be a contract to pay interest,

or there may be a usage, as in the case

of bills of exchange, by reason of which

interest is payable. Otherwise, the general

rule is that no damages are given for non-

payment of money.

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He then discusses the LONOON, CHATHAM & DOVER

RAILWAY CO case. That was a case in which the

House of Lords held that in contract - it was

a suit for an account-where the fairly primitive

statute about interest did not apply, there

ws no power to award any interest. It was an

account between two railway companies involving

traf fie on each others lines. He then says:·.

I agree, if I may respectfully say so, with the statement of the Lord Chancellor -

that is a statement saying how unjust it is not

to give interest in some cases.

This statement, however, relates to the justice of allowing interest in all case

where there is a delay in the payment of

money which is due. It is a statement

that interest should be allowed as a matter

of justice for the delay in payment, but

it is not a statement that the original

liability, whatever it may be, whether in contract, in tort, or by reason of a

statute, includes a liability to pay interest.

When an action is brought for damages for

breach of contract or for tort, the amount

of damages is never increased (apart from

some statutory provision ..... ) because

there has been delay caused by negotiation

or litigation or by other circumstances.

The loss of the use of the money ultimately

awarded as damages is not part of the loss

occasioned by the tort or breach of contract

itself. It is a loss due entirely to delay

in the payment of money ultimately held

to be due, and is not recoverable.

One might think, reading that passage, that

His Honour was simply referring to the second and third categories to which I have referred,

which is cases where there is an action for

debt or an action for damages and a delay in

payment, and not to a case like this one where

there is an action for causing financial loss.

But that distinction does not, with respect,

stand up to analysis because that very case

was a case where property was taken - a ship

was taken - and it was said, as a result of taking

the ship, there has been a loss of earnings

which should be compensated by interst. So,

really, it was an action for financial loss.

Really, the claim was not so much a claim for delay in payment but a claim for financial loss.

Immediate payment would, of course, have mitigated

the financial loss because instead of having

the earnings from the ship the plaintiff would

have had his money and therefore had interest

on his money.

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But, the true characterization of the loss

in that case, as in this case, is damage caused

by initial loss. The initial loss there was

of the ship, loss of income from the ship;
the initial loss here is payment of money,

loss of money that would have been earned if

we had not had to pay that money.	In both cases
the result is the same.

We would submit, with respect, that

His Honour's remarks that it is not part of

the loss occasioned by the tort or breach of

contract, it is loss due entirely to delay

in the payment of money, is a statement which

applies equally where direct financial loss

is inflicted. The true analysis, if one were

to spell it out, lies in the words with which

I opened the case to this Court: it is consequential

damage flowing from the damage caused by the

claim, and the question is: is it in a category

that the law must regard as too remote or is

it not?

There have been some recent developments in England and those developments are summarized

in two cases in which, by coincidence, each

of which the President of India was the plaintiff.

The first of those cases is PRESIDENT OF INDIA

V LA PINTADA COMPANIA NAVIGACION, (1985) 1 AC 104.

That was a case where a debt was paid late but

before action and the issue was whether one

could recover damages for late payment but before

action under any principle, or interest for

that period.

Of course, that was the one area that was

not covered by the statutes because the statutes

all say one can recover interest as part of

one's judgment and on a liquidated debt it goes

back to the date of the debt. But the Court

held that the statutes did not extend and the

common law should not be varied to extend to

late payment of a debt before action.

That produces, Your Honours should note,

one rather whimsical anomaly, and that is this:

if someone is late in paying my debt and I wish

to recover interest on that debt - which may

be several years' interest, it may be a very

substantial amount in proportion to the debt -

I must sue and once I sue I can recover interest

from the date when the debt arose. If the defendant

gets wind that I am about to sue him and he

rushes to my office and tenders the debt before

I issue the writ, then nothing is recoverable.

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So, the question of whether I recover interest,

which may even exceed the amount of the debt,

simply depends on whether my solicitor's clerk

gets to the court office before the defendant's

clerk, bearing the cheque, gets to my office,

and that seems a rather surprising consequence

but it is, nevertheless, a consequence of the

law as it stands.

The other holding in that case was that

there was an exception to the rule in the LONDON

CHATHAM & DOVER RAILWAY case in relation to

the second leg of HADLEY V BAXENDALE. So that

if in the contract damage was caused by way

of consequential financial loss, which would

. .	have been known to the other party to the contract
at the time of contracting, one could recover
it under the second leg of HADLEY V BAXENDALE
and the LONDON, CHATHAM & DOVER RAILWAY case
did not apply to such damages.

That exception seems, with respect, to

be a sensible one. If one takes the extreme

case, where I lend $1 million to a person, repayable

in one month, and I say to him, "It is essential

that you repay on the due date because I propose
to complete a contract on that date and time

is of the essence and if I do not have the money

on that date I will lose my deposit and suffer

other damage", then it is not unreasonable if

the money is paid a day late, and I forfeit

my deposit, for me to recover that. That really

is the effect of saying that the second leg

of HADLEY V BAXENDALE operates by way of qualification

to the rule.

The problem, of course, which faces the Court in this case is how far one takes that in tort and, indeed, if one treats this as a case in contract, which we submit one would

not do, how far one takes it in damages for

negligence for breach of contract as opposed

to a deliberate breach of contract.

The more recent case, PRESIDENT OF INDIA

V LIPS MARITIME CORPORATION, which is reported
so far only, I think, in (1987) 3 WLR 572 -
no doubt it will shortly be in the Appeal Cases -

repeated that holding but contained a useful

discussion of the basis of the principle in

the speech of Lord Brandon at page 580. I propose,

very briefly, to take Your Honours through that

page because that seems to represent the current

position which has been reached in England.

His Lordship said, at B:

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The LONDON, CHATHAM AND DOVER RAILWAY

CO case was concerned, and concerned only,
with the recovery of interest as damages
for late payment ,of a debt. It was in

no way concerned with the recovery of currency

exchange losses as damages for such late

payment. It follows necessarily that the
scope of the LA PINTADA case, in so far

as it -

discusses those matters -

was similarly limited. The House had no

reason in the LA PINTADA case to consider

claims to recover currency exchange losses

and did not do so. Such claims differ

significantly from claims to recover interest

in two ways. First, there is no previously

established law comparable to that laid

down in the LONDON, CHATHAM AND DOVER RAILWAY

CO case, precluding the recovery of currency

exchange losses as damages for late payment

of a debt. Secondly, there were no statutory

provisions relating to the recovery of

such losses which could conflict with any

right of recovery at common law. In these

circumstances it appears to me that claims

to recover currency exchange losses as

damages for breach of contract, whether

the breach relied on is late payment of

a debt or any other breach, are subject

to the same rules as apply to claims for

damages for breach of contract generally.

And he goes on to deal with that aspect. So

that the rules in relation to interest are treated

as a qualification to general rules relating

to damages. The general rule that you put the

innocent party back in the situation he was

in is subject to qualifications in this area.

(Continued on page 12)

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MR BENNETT (continuing):  He goes on:

My Lords, I shall now consider the charterer's

case that the umpire was wrong, in dealing

with the owners' claim in respect of demurrage,
to add ..... to the demurrage element.

Once it is recognised that a claim fo~ demurrage sounds in damages rather than in·

debt, it becomes apparent that the two concepts

first, of a contractual date for the payment

of such damages, and, secondly, of a claim

for damages for breach in not paying them .....

have no basis in law. As I said earlier an

owner's cause of action for demurrage, being

one for damages, albeit liquidated damages,

accrues de die in diem from the moment when the

ship is detained ..... There is no such thing as

a cause of action in damages for late

payment of damages. The only remedy the law

allows is a discretionary award of interest

pursuant to statute.

So the result is,in England, therefore, so far as damage flowing from non-payment of damages are

concerned, one cannot get it unless - except for

the discretionary interest under the statute.
In relation to loss caused by late payment
of a debt one gets what is available under the

statute but no more to the extent that if one

is paid before one sues one recovers nothing at

all and then one has to consider how those

principles are to be applied - I am sorry - thirdly,

where there is a breach of contract one applies

LONDON, CHATHAM AND DOVER with the exception

in relation to the second leg of HADLEY V BAXENDALE, that

within that second leg one can recover damages

for non-payment of money. Finally, when one is

within none of those in tort the recent cases

are silent. I will come to that in a moment.

We would submit that an appropriate rule

to be applied to the infliction of financial

loss would be either that one should only be able

recover damages under the second leg of HADLEY V

BAXENDALE in contract and not in tort and, in

particular, one should not in a case of professional

negligence, or the other way one could construct

a rule would be that it should only apply to

deliberate as opposed to negligent breaches of

contract and intentional as opposed to negligent

torts. That would have the policy effect - I am
sorry - that would be justifiable on policy grounds
on two bases: first, there are much fewer claims

in the relevant categories and, secondly, it is more in accordance with the needs of justice to

compensate in cases of deliberate breaches or

intentional torts.

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BRENNAN J: 

Mr Bennett, is this argument based upon the

hypothesis that the appropriate measure of damages
for the negligence which was found against your
client is the amount of over-paid and unrecovered

tax?

MR BENNETT: 

Yes, Your Honour, yes.

BRENNAN J: 

Does that assumption need examination?

MR BENNETT: 

Your Honour, that was the sole loss inflicted

directly and initially. Had that loss been

rectified innnediately, no further damage would

have flowed. That loss itself gave rise on the

hypothesis now being considered to certain

consequential losses. The question of policy to

be considered is whether one allows those

consequential losses or regards them as too

remote. I am assuming against myself at this

stage of the argument that if one were endeavouring

to put the plaintiff back in the situatioP in

which he would have been but for the negligence,
one would award him the further sums.

What I am submitting is that the effect of

these rules in relation to damages for non-payment
of money is that they apply equally to the infliction
of financial loss which has consequential results.

That was why I started by taking Your Honour to

Mr Justice Latham's judgment to show that he

talked in terms of damages caused by non-payment

of damages in a situation where the loss he was

discussing was a loss caused by the event being

compensated for,as here. The concepts have not

been in the authorities totally separated out

and, we would submit, for good reason, that in

many cases it will be simply impossible to

distinguish between damage caused by the wrong
and damage caused by the failure innnediately to
compensate for the wrong whether that wrong is

non-payment of a debt or the infliction of a

liability to make a payment or the prevention

of the receipt of a payment, because in each of those cases the result of the wrong is that the

plaintiff has less money than he would have had

but for the wrong.

The question then is how you compensate for

what flows in the future from that. We submit

that a global approach should be taken and it

should be regarded as part of the same problem.

So the answer to Your Honour's question is that I appreciate the logical distinction but submit that in most cases the distinction is not as sharp

as one would like and that it is convenient and

desirable for the problems to be dealt with together.

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BRENNAN J: Logically though one does have to decide in

the first instance what the appropriate measure

of damages is for the tort in question, does one

not?

MR BENNETT:  Your Honour, that measure is always the same.

It is the need to put the plaintiff in the position

to the extent the damages can do, that he would
have been in but for the tort, that is,, the conunon

measure of damages whether it is financial loss

or any other loss.

BRENNAN J:  I appreciate that. What I was wondering about

is whether or not applying that measure one does

not find in a tort of this kind damage accruing

de die in diem or whether one has a measure of

damages which is frozen as at a particular date

and one finds that there is the measure which is

the unrecovered tax?

MR BENNETT:  Your Honour, we would submit that there is

no difference between the 18 torts conunitted in

this case causing the 18 small losses and a tort

such as conversion which results in a person loosing

a sum of money which he has, or a tort which

results in a person failing to receive a sum of

money he should receive, or a tort which takes

away an income earning chattel and prevents him

receiving moneys he would otherwise have received.

In all those cases the tort simply results in an

initial capital loss and one then has to say

what flows from that. We would submit there is no difference, no logical difference, between a

tort inflicting financial loss such as this one

and any other tort where the inunediate effect is

the infliction of that sort of loss. The sinking

of the ship in the LIESBOSCH is perhaps a good

example, but I will come to that when I come to

impecuniosity.

DEANE J:  Mr Bennett, while you have been interrupted

did the damages include the loss of the use

of the over-paid tax which was recovered from the

conunissioner?

MR BENNETT:	Yes, Your Honour.
DEANE J:	It did?

MR BENNETT:  Yes. So the whole of the additional 300,000-odd,

or 280,000-odd, the whole of that did not relate
to these three years; the greater part of it did,

but some part of it related to the losses flowing

from the later payments which were recovered.

They were smaller because they were for a shorter

period and for a closed period, although the amounts

of tax in those years were slightly larger.

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DEANE J:  I would not think it mattered, would it?

MR BENNETT:  I do not have the exact figurea here. I cannot

tell Your Honour at the moment what proportion

of the sum was one and the other. ·

And there were also two fairly small items
for the cost of investigation leading to the

recoveries.

Now, we point out in paragraph 3 that in all

the modern cases in which damages have been given

for loss of money within the second leg of

HADLEY V BAXENDALE, there was a deliberate rather

than a negligent tort. TRANS TRUST involved a

sale of goods situation, non-delivery of goods

and, therefore, non-ability to sell them.

WENHAM VELLA involved the transfer of an income

producing asset, a deliberate failure to transfer

it without loss of the income and the third case,

WADSWORTH V LYDALL, involved an obligation to pay a sum of money at a time when the person knew

that the money was earmarked for a particular

contract which the other party was unable to

complete.

So the cases have all been deliberate cases.

LIPS MARITIME, of course, was a charter party case

where there was a failure to pay. This is the

first time, so far as we are aware, in which damages

for loss of further money caused by a negligently

inflicted loss of money has been allowed.	I say
that	subject to correction but I am not aware

of any other case where that issue has arisen before,

a neeligently inflicted financial loss and then

damages claimed for beyond that initial loss on

the basis that that initial loss caused consequential

financial loss.

DEANE J:  Can I just take you back - I am sorry to interrupt

you - to what I asked you a moment ago? On

your approach would the SUPREME COURT ACT apply

to allow interest in respect of that money which

had been recovered from the commissioner?

MR BENNETT: 

If it was recovered after action brought -

I am sorry - no, it would not in any event, no,
Your Honour.

DEANE J: 

Which means on your argument it would be 10 per cent,

or whatever the appropriate interest rate is

on the loss of use of money in respect of which

a verdict was recovered but nothing in respect of

the loss of use of money in respect of which a

verdict could not be recovered because the commissioner

had refunded -

MR BENNETT: 

Yes. That, Your Honour, is the acknowledged

anomaly flowing from the first PRESIDENT OF INDIA
case which the House of Lords referred to as an
anomaly and, indeed, suggested legislative action

in relation to it.

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DEANE J:  I was not putting it argumentatively, I was just

interested in the fact.

MR BENNETT:  No. It is used as an anomaly the other way

if one likes; the others may be anomalies against

me, that is an anomaly in my favour in a sense.

We say, finally on this issue,that weight should

be given to the fact that the legislature has,

in section 30c, provided for interest in appropriate

situations. We would submit that that legislation,

combined with the decision in LONDON, CHATHAM AND

DOVER and the current cases in relation to that,

show that interest or damages were not intended

to be recovered in other situations and that to
describe the situation as not falling within

that provision because the damage itself was

inflicted by the wrong,rather than because the

damage was inflicted by non-payment, is, in our

characterization and one which does not stand

respectful submission, for the reasons I put to

up to close analysis and, indeed, has not been

consistently referred to by the courts.

If one takes almost any case where a person

inflicts financial loss on another in a fixed sum,

one can always say, "Well, the damage that flowed

from that is damage which flows directly" - or

whatever word one wants to use - "from the initial

wrong." In my respectful submission, to characterize

it that way rather than to characterize it as

damages for non-payment of the amount is totally

arbitrary. The non-payment of the amount would

stop it running; occurrence of bhe wrong would

have stopped it running, but ex hypothesi neither
occurred and to say that one rather than the other

caused it is really a metaphysical distinction

without a difference.

Now, that is associated with the second argument and it is convenient to deal with that now because

it does, to a large extent, tie in with the problems
of the first one. That is, that there are a number

of cases which have considered the effect of

impecuniosity on damages. We are talking, of course,

about tort because since HAWKINS V CLAYTON, we

now know that professional negligence cases should

be dealt with solely in tort. The courts below

seem to have taken - this case like most cases, was

brought in both, and the courts below took the

view it made no difference, as it may not have done.

But for the purpose of this analysis, we submit

the appropriate measure, because of HAWKINS V CLAYTON,

is the tort measure.

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Now, the impecuniosity is an unfortunate

word to use in this context because it is not

strictly accurate. What one means by impecuniosity

is that one has incurred the damage as a result

of two things: first, the non-payment or the loss
of a sum of money so that one does not have that

money and, secondly, the unavailability of other

funds which might have enabled one to do something

about it. Now, that gives rise to some very fine

distinctions. If one takes LIESBOSCH, (1933) AC 449 -

to,,which I will come in a moment, it is the leading

case in this area - Your Honours recall in that

case the Edison sank the Liesbosch, the Liesbosch

being a dredger which was dredging a port in Greece.

It was engaging in some particularly lucrative

contracts at the time.

The owners of the Liesbosch had to continue with those contracts in order to continue their

income-producing activities. There were two

alternatives open to them:  one was to buy another

dredge, which would have cost them about 9000 pounds,

the other was to hire a dredge and the port

authority for which they were working made available

a dredge for hire for them at particularly high

rental which resulted,in the remaining 13 months

of the contract, in 6000 pounds being paid by way
of rent for the substitute dredger which could have

been bought for 9000 pounds initially. Of course,

had they bought it for 9000 pounds, that being its

fair value, they would have had the dredge at the

end of the contract so they would not have lost
the 9000 pounds, whereas they did loose the 6000

pounds and it was held that they could not recover

it.

Now, the House of Lords appears to have taken

the view - and this view of the facts has been

questioned in later cases, although the law has not really been questioned - the House of Lords

took the view of the facts that the real cause

of the loss, of the payment of that 6000 pounds,
was the incredible impecuniosity of the plaintiff

which was such a major feature of the case it was really that which caused him to have to pay these

exhorbitant sums, and the sinking of the Edison

was merely part of the factual background in which

that cause operated.

Now, that is a characterization that one might

raise one eyebrows at. But the importance of it

is, what it demonstrates is, that whenever one

looks at one of these situations one can see two

causes. One can always say, "Well, had there been

money, that loss would not have been suffered."

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It may be that some other loss would have been

suffered, namely, the loss of interest on that

money but that, of course, is something more

readily compensable with interest. But the

problem can be generalized. If one has a person

upon whom financial loss is inflicted, he may.

either be a person who has large sums of money

available to him but who is only earning money

on that money, or he may be a person who has

no money available to him and has to borrow and

pay interest on that money. Now, in either

situation he is going to be able to say, "I have

suffered loss by being out of pocket." That loss

may be high or low in either situation. But the

way the courts have looked at it is to say, "Well,

in this situation where he needs to borrow, that

is his impecuniosity" and one must regard that

as a factor causing the damage, whereas, and

similarly I suppose, one could say in relation

to a person who has assets and who is obliged to

cease earning with some of them in order to

compensate for the loss that has been suffered,

one might say in his case, "Well, he is only
claiming damages because of his special situation."

Now, the courts do not seem to have applied the thin skull cases to impecuniosity across the

board. They seem to have drawn a distinction which is between the situation where there is

an inability to mitigate and the situation where

the impecuniosity causes the loss. The problem there

is that there is still a logical distinction.

If one takes the facts of the Liesbosch one could

say, "The plaintiff had a duty to mitigate,therefore

he should have bought the substitute dredge. He

failed to mitigate, that was caused by impecuniosity,

so the question is is impecuniosity an excuse

for non-mitigation?" That is one characterization of the problem. The other characterization of the problem is to say, "The plaintiff suffered a loss.

That loss was caused by his impecuniosity as either	a contributing and equal, or perhaps even a greater
cause than the sinking of his ship and, therefore, he does not recover damages because impecuniosity
is not something which can be used to increase
damages."

The other side t_;> that argument, of course,

is simply to apply the thin skull analogies.

DEANE J:  Is it the thin skull analogy? May it not be

that the more accurate measure of loss is to
work on the basis of borrowed funds, putting to
one side the fact that the man who has constantly

defaulted in repayment may have to pay higher

interest and the like?

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MR BENNETT:  Well, Your Honour, yes, with the very qualification

Your Honour raises. What does one say about the

fact that different persons will have a different

cost of borrowed funds.

DEANE J:  Except these days one gets the impression in the

commercial world that the more money one has the

more one is likely to operate on borrowed money?

MR BENNETT: Well, precisely, Your Honour, but at a lower

rate. An entrepreneur with a large business

empire is going to be able to borrow at a cheaper

rate than the person who has defaulted a number

of times - - -

DEANE J:  I follow your point if you are talking about

impecuniosity in terms of the difference between

the commercial rate of borrowing which a wealthy

and a poor person might have to pay. I thought

it went beyond it though and you were saying that

the very fact that he had to borrow money was

something, or that he did borrow money was

something that was to be disregarded?

MR BENNETT:  Well, that certainly seems to be part of the

approach taken in cases like the LIESBOSCH in the

days, no doubt, when people had funds standing

to their credit in current accounts. But I will

show Your Honours a discussion in the cases in

a moment because these problems have, to some

extent, being directed, but where I am ultimately

going- is to say that this is really part of the

first problem and that one cannot separate so

easily the question of the extent to which the loss is caused by-impecuniosity and the extent

to which it is not. It is one of the reasons

why one needs a simple rule that one gives everyone

the same interest - except in the intentional

cases to which I have referred, the start	cases -
one applies that rule across the board.

DEANE J:  Yes, except if one approaches it on the basis

that it is legitimate to accept the borrowing of

money as a starting point, the transition to what

you call the "egg shell skull" approach is a lot

easier than if one never gets into that territory
at all? ·

MR BENNETT:  Except this, Your Honour, that one gets into

a number of problems then. One first gets into

the problem of apportionment, -the sort of problem

one has here,where one has one lender who has

lent at a high rate of interest, other lenders

at lower rates of interest, in fact, no capital

repayments being made over the relevant period,

and someone says, "Well, if I had 18 little bits

of money more over this period I think I would have

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Hungerfords(2)

paid them some money and, therefore, I should be

entitled to select that lender not the more general

connnercial lender." There is all sorts of

difficulties with applying it in practice and

what does one do for the person who has money out
at a very low rate of interest which you could get

back and who says, "Well, I claim the normal rate

of interest which I either did borrow at or could

have borrowed at." Does, one say, "Well, he should

have mitigated by taking his funds from the low earning area? 11 It is the danger of having to embark

on the inquiry made in this case, in every case

of negligently induced financial loss which, we

would submit, is the real problem.

• •

Let us start with a case earlier than LIESBOSCH,

which is referred to in it, an' appeal from Scotland
in CLIPPENS OIL COMPANY LTD V EDINBURGH & DISTRICT
WATER TRUSTEES, (1907) AC 291. This is one of

those very rare cases where damages were being assessed after an undertaking as to damages in

an interlocutory injunction case. I think it

was called an interject rather than an injunction. What had happened there was a miner,a shale miner,

had been restrained by an excessively wide injunction

from operating near the Edinburgh Corporation's

water pipes. It was said, when damages were

being assessed against the Edinburgh Corporation,

that he could have extracted shale from other

areas thereby mitigating his damage. His case
was he could not afford to do that because there

were more expensive areas to operate in. There

was discussion about how that affected the measure

of damages. The discussion is in the speech of

Lord Collins at page 303. I should say the larger

figure was awarded. About three lines below

Lord Collins' name in the right-hand margin, about

point 3 of the page, His Lordship said:

But they do take one point which they contend

shows that a wrong measure of damages was applied,

and that in consequence the amount awarded was

improperly reduced. For this point they found

mainly on a passage in Lord Dunedin's judgment:

"The defender are not to be prejudiced by the

fact that the times were bad and that the

company was not rich. Accordingly a claim upon

total loss is, I think, inadmissible." It

was contended that this implied that the

defenders were entitled to measure the damages on

the footing that it was the duty of the company
to do all that was reasonably possible to
mitigate the loss, and that if, through lack

of funds, they were unable to incur the necessary

expense of such remedial measures the defenders

ought not to suffer for it. If this were

the true construction to put upon the passage cited,

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I think there would be force in the observation,

for in my opinion the wrong-doer must take

his victim talem qualem -

I think that means as he finds him -

and if the position of the latter is

aggravated because he is without the means of

mitigating it, so much the worse for the

wrong-doer, who has got to be answerable for

the consequences flowing from his tortious

act. On the other hand, the victim being

in fact a poor man is not entitled to claim

damages in respect of lost opportunities

which he could not have utilized unless he had

been rich.

He goes on to give examples of that. So the

approach taken there was the thin skull approach.

Now, in LIESBOSCH that passage was distinguished

on the basis that it applied only to the mitigation

of damage. In other words, that if impecuniosity

was the cause of the loss, one could not recover

it, but if impecuniosity was an excuse for not

mitigating, itdid operate as such an excuse.

That passage appears in LIESBOSCH, (1933) AC 449 and the passage is at pages 460 and 461 in the

speech of Lord Wright.

(Continued on page 22)

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MR BENNETT (continuing):  Lord Wright, at page 460, just

above the middle of the page, Your Honours see the words

"of money" in the left hand margin:

But the appellants' actual loss in so far as

it was due to impecuniosity arose from that

impecuniosity as a separate and concurrent cause,

extraneous to and distinct in character from.the

tort; the impecuniosity was not traceable to
the respondents' acts, and in my opinion was
outside the legal purview of the consequences
of these acts.

Stopping there, that is the rather surprising statement that the loss in having to charter the boat was more due

to impecuniosity than it was to the sinking of the

Liesbosch. His Lordship goes on:

The law cannot take account of everything

that follows a wrongful act; it regards

some subsequent matters as outside the scope

of its selection, because "it were infinite

for the law to judge the cause of causes",

or consequences of consequences.

In other words, the answer which His Lordship gives to

Your Honour Justice Brennan's question is that one

characterizes this type of loss as something caused by

the initial loss, rather than caused by the initial wrong.

He goes on:

Thus the loss of a ship by collision due to

the other vessel's sole fault, may force the

shipowner into bankruptcy and that again may

involve his family in suffering, loss of

education or opportunities in life, but no

such loss could be recovered from the wrongdoer.

In the varied web of affairs, the law must abstract

some consequences as relevant, not perhaps on

grounds of pure logic but simply for practical

reasons.

We, with respect, echo those words: 

In the present case if the appellants' financial

embarrassment is to be regarded as a consequence

of the respondents' tort, I think it is too

remot.e, but I prefer to regard it as an

independent cause, though its operative effect

was conditioned by the loss of the dredger.

The question of remoteness of damage has been

considered in many authorities and from many

aspects, but no case has been cited to your

Lordships which would justify the appellants'

claim. A dictum was quoted by Mr Raeburn from

the speech of Lord Collins in CLIPPENS OIL -

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Hungerfords(2)

and that is then set out, and he goes on:

But, as I think it is clear that Lord Collins

is here dealing not with measure of damage,

but with the victim's duty to minimize damage,

which is quite a different matter, the dictum is

not in point.

He then refers to RE POLEMIS and the directions test,

and says:

Nor is the appellants' financial disability to

be compared with that physical delicacy or

weakness which may aggravate the damage in the

case of personal injuries, or with the

possibility that the injured man in such a case

may be either a poor labourer or a highly paid

professional man. The former class of

circumstances goes to the extent of actual

physical damage and the latter consideration goes

to interference with profit-earning capacity;

whereas the appellants' want of means was, as

already stated, extrinsic.

Then he agrees with the conclusion:

that the damages must be assessed as if the

appellants had been able to go into the market

and buy a dredger to replace the Liesbosch.

That case, we submit, remains good law in tort. There is one case in this Court where this issue has been

partially referred to, although not in a majority

judgment, and that is in the concurring judgment and

in Justice Brennan's dissenting judgment in BURNS V MAN

AUTOMATIVE, 161 CLR 653. That was a case where there was

a breach of warranty on, the engine,· of a truck and, as a

result, profits were lost. One of the arguments was

he could have bought a truck that worked perfectly and

then not have lost those profits. The

Chief Justice, Sir Harry Gibbs, at page 658, said, in the middle of the page:

With all respect, I consider that this is a case	in which it is necessary to consider whether the
appellant did what he could to mitigate the
damage caused by the breach of warranty. As I
have said, a loss of profits for the four years
during which the reconditioned engine could probably have been used was within the
reasonable contemplation of the parties as a
consequence of a breach of warranty.
Notwithstanding the much criticized decision in
LIESBOSCH DREDGER -

I should say criticized but never overruled -

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any damage which resulted from a breach of the

contract, and was reasonably within the

contemplation of the parties when the contract

was made, is recoverable even though tne

appellant's impecuniosity contributed to it -

and later cases are referred to -

However, the appellant was bound to take alt

reasonable steps to mitigate the loss, and one

course open to him to mitigate the damage, if he could have afforded to take it, was to have the

engine reconditioned ..... his impecuniosity

prevented him from taking that course. The

question arises whether it should be held that

the appellant is debarred from claiming such

part of the damages as is attributable to his

failure to take the necessary steps in mitigation,

when he was unable to take those steps.

Stopping there, that is exactly what in LIESBOSCH and

in CLIPPENS OIL it was said that one could not reduce

his damages for, and His Honour goes on to say that:

That question must be answered in the negative. effect of impecuniosity in the assessment of

damages in tort, drew a distinction between the

measure of damages and the victim's duty to

minimize damage. After referring to a passage

..... in CLIPPENS OIL -

he said that that is a different matter and he cites what

I have said. The issue did not arise at all in the

majority judgment of Justices Wilson, Deane and Dawson.

Justice Brennan referred to it at page 674, and Your

Honour at that page said this:

Apart from foreseeability ..... a plaintiff must show that the loss he seeks to recover results

from the breach of contract relied on. If the

loss results from some extraneous factor, the

plaintiff fails to establish the essential	causal link ..... It is in reference to this
link that it is appropriate to consider
LIESBOSCH ..... According to Kerr L.J. the authority
if what Lord Wright said in THE LitSBOSCH is
consistently being attenuated in more recent
decisions of the Court of Appeal. Whether that
be so or not, there is no reason why Lord Wright's
speech should be regarded as expressing a general
principle limiting the assessment of damages in
contract or tort.

Your Honour goes on to deal with the facts of the case

and then says:

AlT7/3/HS	24	23/8/88
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The owners incurred the extra expense because

they were unable, by reason of impecuniosity,

to finance the purchase of a dredge.

Then Lord Wright is cited:

His Lordship was prepared to hold that the owners' financial embarrassment was too remote

to be regarded as a consequence of the tort, but

he preferred to regard it "as an independent cause"

(scil., of the extra expense incurred by the owners

in working the Adria). Both remoteness and

causation are matters of fact ..... His Lordship's view of the facts in THE LIESBOSCH do not compel

a similar finding in other cases. There is no

justifiction for treating impecuniosity in the

present case as being either an extrinsic cause

of lost profits ..... or as making those profits

too remote. In this case, the cause of the

loss of profits from inter-capital haulage ..... was

the same as the cause of the loss of profits prior
to that time, namely, the unfitness of the prime

mover.

That, of course, was a case where there was a continuing

physical cause of loss of profits which, we would submit,

could be regarded as being in a different policy category

to a once and for all infliction of a capital financial

loss with financial consequences. Those are the leading

authorities in the area - there are other cases which I

have referred to in passing - but we would submit that

there is no case since the negligent infliction of financial
loss has been recoverable in tort considering these

questions. In other words, in that sense the question

whether the negligent infliction of financial loss

gives rise to damages for consequential loss resulting

from the initially inflicted financial loss is, we would

submit, an open question, and one in which one is entitled

to apply not only legal reasoning by analogy, but also

the more general considerations of the type to which I

have referred.

We would submit that particularly bearing in mind the

presence of section 30c and similar sections, that

damages in such a case should be limited to those

recoverable under that section in the manner which the

trial judge adopted. That brings me to the first of the

factual issues. I have indicated that there were two

ways, two links required in order to get from the payment

by the partners of the additional tax through the

partnership and the non-payment of the Mutual Acceptance

loans, or the earning of the higher sums. The first

question is whether the partners, if they had had larger accounts, larger loan accounts, would have drawn some of it out for their own purposes, or drawn out more than they

did draw out; in other words, whether they would have left

in the business the whole of the 18 items totalling

$47,000 over the three years. That is the first question.

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The second question is, assuming the business had had the money, would it have used it to retire the

Mutual Acceptance loans or for some equally profitable

purpose. Mr Justice Bollen dealt with that, if Your

Your Honours go to volume three of the appeal book at

pages 492 to 495, and it will be my submission that this

reasoning ought not to be interfered with. His Honour,

at line 9, having gone through some of the cases_ in the

Federal Court where there has been a difference of

opinion on whether one can recover interest as damages

under section 52 of the TRADE PRACTICES ACT, His Honour

goes on to say this:

It will be remembered that Lockhart J

emphasised the need for proof to sustain an

allowance of interest. It will be remembered

that Mr Whitbread's calculations were based on

the assumption that the plaintiffs would have "retired" the most expensive loan. Peter and

Michael Walker so swore. Other partners were

not called.	I draw no inference at all from that
non attendance.	I am sure Peter and Michael
Walker spoke truthfully.	They believe what they

said. But I cannot accept what they say. They

believe now that in past years, going back about

ten years for a start, they would have applied

money which they did not have in a certain way.

They look back. They see that payment in

reduction of the most expensive loan would have

been sensible. They are infected with that

realisation. But who can know? Who can really

say that the probability is that they would have

paid, as they claim, every dollar of overpaid tax,

or if that be too dramatic, every one hundred

dollars of it into one receptacle? Who can say

that it is not equally as probable that they would

have used the money in the business in some other

way? And is there no possibility that none, or no

significant part, of the money would have been used

by any one partner for private reasons. I have

no evidence which shows the return on appliances

let or the margin of profit on those sold.

later on because the Full Court's reasoning was these men	Stopping there, that is a finding which is very important
have business acumen, they were paying 18 per cent and
over to Mutual Acceptance, they would not have done that
unless they were earning at least that, therefore they
would have earned at least that in the business. We
would submit that, with respect, is an attenuated and
invalid line of reasoning - but there was:

no evidence which shows the return on appliances

let or the margin of profit on those sold.

Suppose the payments by a hirer over a term .....

produce ..... 25% on cost. That is higher than any

rate of interest used by Mr Whitbread. Might not

the plaintiffs have put the money into something

which returned income at a rate more than they

AlT7/5/HS	26	23/8/88
Hungerfords(2}

were required to pay their financier? One can

multiply doubts about what might have been done

with the money had it been available. Of course,

it was never as much as $47,000 at any one time.

It was never at any one time a really large sum. As I have said, it was 18 sums over three years, with an

average of $2700, and the largest was $4300 and the

smallest was $1000:

It may just have been partly used in the business

and partly by partners for their own purposes

without anyone quite knowing what was happening

to it -

because, of course, on the hypothesis being considered that

one pays less in tax over those three years, no one

identifies the sum that would have been paid and says,

"What will I do with that sum?" -

Had there been a loan made more or less at the

time of each overpayment or an increase in the

loan corresponding to the overpayment at about

the relevant time the situation might have been

different. But there is not. Mr Gray said

that it was natural that there be no such·

"corresponding loans" because it was a pool of

money made available by the financier. No doubt.

But I think that Mr Perry defeated this submission

thus -

and the argument which is adopted is this, that -

none of the witnesses suggested, and Peter Walker and Mr Whitbread were asked 'Can you point to any advance by Mutual Acceptance which is referable

to the payment of tax?' and the answer was 'No'.

When we look at those advances, they were going up

and up because this business was expanding. It

went up to $500,000 ..... It was a money hungry

business, which required an enormous input of

capital, and no repayments whatever were made

except one of $75,000 I think, and when the family

company took over much of the loan - the

substantial repayments then to Mutual Acceptance -

and then there are the small repayments of interest

and amounts on contracts, and that is the only

repayments that were made to Mutual Acceptance

between 1973 and 1985.

I could take Your Honours to that evidence if necessary, but the evidence established that there were certain

situations where repayments had to be made out of certain

contracts, and there were repayments of interest, but

during the whole of that period they were not repaying

capital when they were able to do so. So one would not

assume that had they had a few thousand dollars more

they would have done so:

27

A1T7/6/HS	23/8/88
Hungerfords(2)

I do not allow the sums claimed ..... I do not

think that the law perm.its it in this case.

Nor do I think that the evidence supports the

claim as made for interest as a component of

damages.

Mr Gray claimed on the alternative ground.

He claimed that damages should be awarded for

"loss of use of the money". I am satisfied that

the plaintiffs have suffered some loss by not

having had the overpaid tax available for use in

the business. I think that the best way to prove

a loss and the amount of the loss caused by loss of

use of money would be to show how much a business

made in a given time and how much it would have made had it had the extra capital which in fact

it did not have.	But obviously that would not be
easy.

Then he gives an example with bicycles and he says:

No attempt was made to do an exercise like that

here. Nor do I suggest that:it: was practicable to have attempted it. Indeed, it may have been

impossible. But if there was a loss by reason of the overpaid tax then the Court must strive

to assess it. The Court must not throw up its

hands and abandon the attempt. But sometimes a

Court will not be able to assess damages strive

though it may. The evidence may not be adequate.

I believe, in this case, that the plaintiffs would

have put most of the overpaid tax into the

business.	I baulked at accepting the evidence
of payment of all to one lender.	But the

business was one which needed to be fed with money.

Norton and Raphael acknowledged in effect that the

plaintiffs would have probably paid much of the

overpaid tax into the business. They could have

foreseen this probability. If most of the money

had been so used it is a fair inference that the business would have been rather more profitable. It was a successful business. I think that had

they not paid too much tax they would have used

much of the excess "in the business" but I

cannot accept that no partner would have used any

of the excess for some personal.expense. In some

way more money put in would, in my opinion, have

probably produced more money coming out. So far

so good. But how much more? Or how is it to be

assessed? To a degree I think that one can assess

by taking into account the rate of interest which
the plaintiffs might have expected to receive from

the use of the extra money. If I had been

satisfied that they would have paid all in

reduction of the most expensive loan, the rates

applicable to that loan would have been fit to be

used. But the plaintiffs could not continuously

have invested money at the rates charged by its

financier. They could not have left money so

AlT7/7/HS	28	23/8/88
Hungerfords(2)

invested.	They needed money for use in the
business -

and he goes on to say how there were various small items

they would have had to use, and he says compound interest

should not be used because the basis for that was

destroyed in cross-examination:

The question of damages then becomes one of

"assessment" and not "calculation". I think that had the plaintiffs had the overpaid tax for their use at the times of overpayment and

thereafter they could and would have used much

of it to produce a profit which may fairly be

assessed at 10% on that money. Perhaps that

is conservative. But I am considering the span

of years since 1975.

He then awards the sum set out on the following page

which come to a total of $131,000. The precise figures

are $47,000 principal, $67,000 interest, $16,000 interest

on the provisional tax - I do not think that coincides

with the interest on the later three years. It may do,

but I do not think it would do. It may not matter for

present purposes - with a grand total of $131,000, and

impeccable.

then the smaller items brought that up to 145.

The Full Court dealt with it at page 512 to page 515, and starting at line 23 on page 512 - it sets out the

facts before that - and then His Honour the Chief Justice

goes on:

The learned trial judge did not accept the factual

basis of the appellants' claim in toto. He found

that they would have used most, but not all, of

the overpaid tax for the purposes of the business.

He found that there was a possibility that a

significant part of the money, if available, would

have been used by one or more of the partners for

private purposes.	Obviously there must be much
speculation in any assessment of what people would

have done in the past with money which they did

not have. The judge reached his conclusion after hearing the evidence of two of the partners ..... I do not think that it is reasonably open to this

Court. to disturb findings of this kind -

So we accept that -

The learned judge was not prepared to accept the

appellants' evidence that they would have used the

money to pay off the Mutual Acceptance loans bearing

the highest rate of interest -

and he goes on, after discussing that, to say at line 20:

A1T7/8/HS	29	23/8/88
Hungerfords(2)

He reasoned from that that it would be wrong

to base damages upon the rate of interest payable

in respect of the most expensive loan.	I think
that that reasoning is incorrect.

That is where we submit the error came in, in rejecting

that finding, and the basis for the rejection is set out

in the following lines:

The appellants conducted a successful business.

Their business judgment was obviously sound.

The success of the business proved that they were

able to employ the funds which they borrowed in a manner which enabled them to pay the high rate of

interest and make a profit. No doubt there must

be limits to the quantum of funds which they could

employ profitably. But their successful conduct

of the business provides every reason for
confidence that they would make correct judgments

on that point. If they had had at their disposal

the money which was overpaid in tax and had been

prepared to use it in the business, it would have
been business common sense to repay the loans
bearing the highest interest, and to employ the

additional funds directly in the business in lieu·

of repaying those loans only if by so doing they

could earn profits inexcess of the rate of interest

which they were paying on the most expensive loans.

It seems to me that their loss, to the extent that

they were prepared to devote the additional funds

to the business, could not be less than -

and we say, with respect, that is fallacious -

than the rate of interest which they were paying

on the Mutual Acceptance loans. Moreover the. loss

would be compounded.

Then he goes on to that, and the conclusion at line 21 is:

In my view, therefore, the loss occasioned by the overpayments of tax, assuming that all the

additional money was devoted to the business,

should be measured by compound interest at the

Mutual Acceptance rate on the amounts overpaid for

the period ..... The loss arising from loss of use

of the money on that basis ...... is $334,000 -

this is on an initial figure of $47,000 -

The loss continued to run until the date of

judgment ..... This calculation is based upon the

assumption that all the overpaid amounts and

the interest which would have been saved ..... would

have been devoted to the business ..... The learned

judge did not accept that -

and he accepts that finding and then says he must make a

discount for amounts that would not have gone into the

AlT7/9/HS	30
Hungerfords(2)

business. That is a discount for amounts the partners

would have spent on their own personal matters, and he

says at line 22:

There is no firm basis for arriving at the

amount of the adjustment. It is a matter of

judgment on the sparse material available.

Allowing for this factor but bearing in mind that the loss continued to run ..... I would estimate the loss ..... at $270,000.

So he makes a deduction from $340,000 to $270,000

which is a 19 per cent deduction for the possibility that

they would have taken some of the money out, no allowance

for the possibility that any of the money would have

earned a cent less in interest than the Mutual Acceptance

rates. Now, we would submit, as a matter of inference,

not having heard the witnesses, those inferences ought

not to have been drawn by the Full Court.

Mr Justice Millhouse agreed, Mr Justice Jacobs

substantially agreed and he delivered a short judgment

adopting that part of the reasoning.

(Continued on page 32)

AlT?/10/HS	31	23/8/88
Hungerfords(2)

MR BENNETT:  Now, we submit, first of all it is now clearly

accepted by both courts that, contrary to what the

plaintiff asserted, they would not have used the

money to repay the Mutual Acceptance loan. It is

then said, but they must have been earning at .

least that in the business or they would have done

so. Now, there are a number of problems with that.

First of all, let me put an extreme example.·

Suppose a business needs a million dollars' worth

of capital and is returning 15 per cent, and

suppose one can borrow $900,000 at 10 per cent;

and one borrows that but one needs the million

to be able i.to earn the 15 per cent. The remaining

$100,000 on second mortgage or further loan may

only be available at a much higher rate, say, at

20 per cent.

It would still be sensible business practice to

borrow that $100,000 at 20 per cent because that

would enable one to earn 15% on one's whole million.

So there may well be situations where it is

perfectly sensible to conduct a business which is

making profits, although those profits are lower than

the rate of interest being paid on the most expensive

loan. One cannot measure the profitability of a

business b~ looking at the interest rate being paid

on the most expensive loan and saying, well, it
must be earning on at least that basis. It is simply

a mathematical fallacy, or perhaps a business fallacy,

in that reasoning, and that is the only evidence it is

based on,because, as His Honour said, there is no

evidence of what the profitability of the business

was. We know the business was making profits and

we know that it was borrowing money from

Mutual Acceptance at high rates of interest and from

other people at lower rates of interest, but one

cannot simply draw the inference from that, and we

know that there were no repayments being made to Mutual Acceptance of capital over the period, so

the partners obviously did not consider that the

retiring of moneys was a necessary part of the business~

so why should one assume that those additional funds
which may or may not have had a significant incremental	effect, would have produced the high rate with no
discount at. al 1_?

The only discount is one for the possibility

that it might not have got into the business at all

and one would have thought a fairly low discount for

that possibility but, even leaving that aside,

nevertheless why should one make the assumption?

WILSON J:  Was that not an element in Mr Justice Bollen's

reduction to 10 per cent?

MR BENNETT:	Yes, he put the 10 per cent as an overall figure.
WILSON J:	Yes.

AlT8/l/VH	32	23/8/88
Hungerfords(2)

MR BENNETT:	He said that there was - he did not express a view on how much would have gone into the business.
He said some would and some would not.
WILSON J:	He did not disregard it.

MR BENNETT:  He did not disregard it, no. It seems to have

been included in the 10 per cent.

DEANE J:	Does one simply ignore the impact of taxation here?.
Because, I mean, 49 per cent of what they did not
have would have been gone in tax anyway, shortly
after they did not get it?
MR BENNETT:	I do not know that the GOURLAY point was argued,

Your Honour. Of course, that would depend upon

whether the verdict would be subject to tax. That
would be one of the issues in the GOURLAY - - -

DEANE J: Well, it would not, really, would it? I mean, if

you are going on loss of use of money,	it is one
thing to say the verdict would be subject	to tax, but
there is also the ingredient as to the	time at
which tax would have been payable.

MR BENNETT:  Oh yes. I think it is fair to say - I say this

subject to correction both from my learned junior

and from my learned friend - I think it is fair to

say that, to some extent, that problem was considered

in the blue book which had the very detailed

calculations in it.

DEANE J: Well, I do not think you should waste time on it.

I was just concerned whether we should put a caveat

in our minds that it should be made clear that that

question has not been litigated in this appeal.

MR BENNETT: Yes. Your Honour, my understanding is - again

I say this subject to correction - that the

questions of the impact of payment of provisional

tax at different times, and so on, were taken into

account, but that the amounts of tax that would have

been paid on the moneys earned were not. But I may
be wrong in that and I would not like the Court to

act on it until I have checked with my learned

junior and perhaps my learned friend in the luncheon

adjournment.	But certainly that is one of the
complicating factors.	Do Your Honours propose sitting
till one?

MASON CJ:  We will adjourn now, Mr Bennett.

AT 12.48 PM LUNCHEON ADJOURNMENT

A1T8/2/VH	33	23/8/88
Hungerfords(2)

UPON RESUMING AT 2.15 PM

MASON CJ: 

Yes, Mr Bennett.

MR BENNETT: 

Your Honours, we have had photocopied over the

luncheon adjournment, in order to answer the
question asked by Mr Justice Deane, some of the

was the blue book. Might I hand some of those to pages, by way of sample, from the exhibit which calculation that was used. The first bundle

of pages which Your Honours see are numbered

from 82 to 94 are 13 of the 94 pages which set out,

in relation to each partner, what occurred in each
year.

So if Your Honours go to page 83, in relation

to the partner M. T. Walker, Your Honours will see

the first entry is an overpayment of tax, in 1976 of $1,141;

then percentages of 18, 19, 15, 17, 21 and so on

are taken over various periods showing the interest

on that at different times and that is compounded

annually and added back in. Then the same thing is

done on the following page for 1976 year and on page 87 for the 1977 year, and so on. When one

gets to the years in which refunds were made,

starting with the 1978 year on page 89, Your Honours

see one starts with the overpayment of tax in

March 1979 of $4400 and then interest at 15, 15, 17

and so. Then there is a refund in July 1982. By

that time the balance on this hypothetical account

is up to $7209, so what he has done is to deduct

the refund leaving $3084 which continues to carry
interest at these rates right up to 1986. So that it
is said that the payment, the overpayment of $4000

in 1979, repaid in 1982, is continuing to have an

effect of $32.61 because 13 days at 19.5 per cent

in 1986, and so on.

So that is the way those figures were prepared

and there is no allowance in those for the fact that

tax would have been paid on any part of the receipts. Now, of course, we accept that the basis of GOURLAY's case and the more recent cases in relation to

taxation is that one would not make that deduction.

But, as Your Honour Mr Justice Deane pointed out to

me, one of the problems with these figures is that

they include interest being money that would have been

earned on money that, in fact, would have had to be

paid as tax. So, in fact, that is an additional

reason why this hypothesis has difficulties as a

method of reaching conclusions.

The other matter to which I referred in the morning -

Your Honours recall that I reminded Your Honours of the

passage in Mr Justice Bollen's judgment at page 492,

line 28, where he said:

AlT8/3/VH	34	23/8/88
Hungerfords(2)

I have no evidence which shows the return

on appliances let or the margin of profit

on those sold.

I should concede there was evidence of gross profit

and there was evidence of some breakdown of that,

but insufficient for the purpose for which His Honour

refers. That evidence is in the shorter of the two

piles I have given Your Honours - the smaller one.

Your Honours will see on the second page of that -

this was a profit and loss report for December 1976

and similar documents in the blue book for various

other dates. Your Honours see that shows on

rentals and sales a gross profit of 22 per cent;

on service, obviously a gross profit of 81 per cent,

because, of course, the cost of providing service

is not taken off there, and the total actual averaging
there is of 27.1 per cent. Then, when one deducts

the expenses, one has a net operating profit of

13 per cent on rentals and sales and 11.8 per cent

on actual and, in fact, a loss on the service section.

Then at the very bottom one has a net profit

before tax after interest and overheads are taken off,

of 7.5 per cent. The difficulty is, of course, that

none of those figures really answer the question,

because the question is, how much more would have been

earned if this additional sum was there? And it is

an impossible calculation to do because, to take a

simple example, one does not know whether they were

selling all the appliances that they could purchase

or whether they were purchasing all that they could

sell, and it would make a difference. Ifi:the

limiting factor in their profit was the number they

could afford to buy, then if they could have

afforded to buy one other appliance and they could

have handled it in the shop with the facilities they

had, they would have made the extra profit on it at

the gross rate.

If, on the other hand, they were able to fulfil all the demand and therefore buying more would not

have increased the sales, then the money would have

been of no value to them, except in the added

efficiency of the business having an extra appliance

there. So, if it is somewhere between those, in

relation to different appliances, one would have to work it out again. So the real point is the result

must be speculative, but one does not reach the

result by taking any of these figures and saying

well, that is the figure the business was earning

on its turnover and therefore a greater sum of money

would have increased it by that amount. If it did -

if one did take an average view, we would say you

take the net operating profit figure which, for

this month was 11 per cent and was generally around

the 10, 11, mark - I think sometimes a bit up or a

bit down from it - and His Honour, Your Honours will recall,

AlT8/4/VH	35	23/8/88
Hungerfords (2)

took 10 per cent. Now, I think that completes

my submission in relation to the third matter.

The fourth matter is a very short one. Your Honours

will see from page 164 of volume one - I will not

take Your Honours to it unless Your Honours· wish

me to do so - that the partners loan accounts were

always in credit, with one exception, so that the

effect of what was done was that the effect of

the overpayment of tax was that each partner was
liable to pay more tax than he should have been
liable to pay. That was paid by a partnership cheque

in each case and the amount of that cheque then

operated as a deduction from - as a subtraction from -
what that parner owed the partnership. So it was

a debit to his account which was in credit at all

times both before and after.

Then the consequential loss which is said to flow flows to the partnership because it is the

partnership which is making the profits and which is

said to make less profit. Now we submit simply that

is not - that cannot be a direct consequence, and,

in the meaning of the requirement that it be direct,

of the wrong. The reason the partnership makes less

money is that the partners choose to debit their

loan accounts rather than pay the additional amount out of their personal resources or out of their own

spending. They choose to do it that way and, we

would submit that is a - to whatever extent that

choice may be dictated or made highly desirable by

the waythey operate or the personal impecuniosity,

we would submit the directness is broken, That

brings me to the final issue - - - r •

BRENNAN J: Is that not rather - the fact that the loan accounts

were always in credit - does that not rather indicate

that the partners were accustomed to putting their

money into the business?

MR BENNETT:  Yes, it does, Your Honour. But to say that

it is forseeable - I am sorry - to say it is direct

that, where one causes a financial loss to an

individual, that he will therefore choose to leave

less money in a business which will suffer damage

and which thereby causes him to suffer damage as a

partner, we would submit, is simply one step further

than the Court is prepared to go in remoteness cases.

It is a very short point; it is either correct or not

correct. The final issue -

DEANE J: Mr Bennett, I have got lost somewhere. In relation

to the tax that was not returned, that was paid under

an assessment to the partner?

MR BENNETT:  Yes.

AlT8/5/VH	36	23/8/88
Hungerfords(2)

DEANE J:	And the partner suffered the detriment in the partnership books.
MR BENNETT:	Yes.

DEANE J: Well then, who recovered that tax? The partner

in this action?

MR BENNETT:  I am not sure what the evidence established on

that. I would have assumed it would go back to

the partnership, but might I have that checked,

Your Honour?

DEANE J:	But it must be the partner.
MR BENNETT:	I will have my learned junior check that,

Your Honour. I am not certain. Obviously, the

payment would have been by the commissioner to

the partner, but whether it was banked into the

partnership account or paid directly into that

account or not, I am not sure what the evidence - - -

DEANE J:	But if it was the assessment to the individual partner, it was paid by the partnership on behalf of the individual partner and debited against him
in the partnership accounts which means it must be
the individual partner who recovers the tax.

MR BENNETT:  Yes. Certainly it appears to have been - the

plaintiffs' claim gave credit for the amount when

it came back, so the plaintiffs' claim did not

seek to suggest that the loss continued and

that individual partner had received the money.

So the plaintiffs accepted that once that money
came back it was credited to the damages account.

The problem was, of course, in the way I showed

Your Honour in those documents, it did not wipe out

the continuing damages flowing from the initial

payment. Also, I think I am correct in saying

that all the refunds were after the incorporation

of the company. I will just check that, but I

think that is the case.

Yes, the first refund was in July 1982,

according to this, and the company was incorporated,
I think, at the end of 1981 or the beginning of

1982, so at the time the refunds were received,

they would have been - the partnership was not

continuing except for the limited purpose of owning

property and the company was carrying on business

and that really goes to this next point I am about

to deal with.

Your Honours, the final point is the corporate

veil point. There is only one piece of evidence to which I need to take Your Honours in relation to this, and that appears at pages 83 to 84 of

volume one. At line 31 on page 83 Mr Perry, as

he then was, asks this in cross-examination:

AlT8/6/VH	37	23/8/88
Hungerfords(2)

Q. Perhaps you might help me with something,

you have referred to the formation of the

company and the State bank advancing money and

so on. Has the partnership continued to conduct

the business at Murray Bridge.

A. No, the partnership hasn't continued to

conduct the business from Murray Bridge since

December 1981.

Q.	What entity has conducted the business since
then.
A.	Walker Stores Pty Ltd.
Q.	What interest would you and your brothers

and wives have in that.

I think that means he and his brothers and his brothers' wives:

A.	We have separate nominee companies each
of us.	It is Walker Stores Pty Ltd trading as

Radio Electrix for the Walker Family Trust

of which each of the brothers have trust

accounts.

That is a slightly ambiguous phrase:

benefit of the family trust in which the various	Q. It's a nominee company conducting for the
family members have various shares and is it
just the six of you who have the shares in the
family trust or is it more than that.

And there is an answer which is very hard to understand:

A. Well, the family trust is only the six

obviously the beneficiaries go to our families.

part or the second part of that sentence - it perhaps	I am not sure if the "obviously" relates to the first
does not matter. I am not sure what is meant by:

The family trust is only the six.

Maybe it means that only the six are directors of the

company, but:·

The beneficiaries -

which, I assume, is the beneficial interest -

- goes to our families.

Q. So the income of the family trust is divided

amongst more than just the six of you.

A. Yes.

AlT8/7/VH	38	23/8/88
Hungerfords(2)

Q. Indeed it extends to the wide family.

A. No, it extends to our immediate family in the case of myself my two daughters, in the

case of my brothers, their children.

Q.	How many children have they got.
A.	Barry has got three, two girls and a boy,

and Michael has gone one of each, one born

about six weeks ago.

So there are seven children who are participating.

Q. When Walker Stores Pty Ltd assumed the

conduct of the business in December 81, what

happened to the partnership.

A. The partnership still existed and still

does exist today because the partnership does

own some of the premises within the company

and there is no point in changing the ownership

of those premises because of the involvement of

stamp duties, so I guess for a better word, the

partnership is there-just maintaining those

premises.

Q. After December 1981 did the partnership owe	these moneys to Mutual Acceptance.
A. The partnership would have owed the moneys
to Mutual Acceptance, yes.
Q. Was that paid out by the State Bank.

And it goes on to deal with that.

Q. Was it still moneys owed by the partnership or was it taken over by the company, the

limited company. If you don't know, say so.

A. I am not quite sure to be perfectly honest

in relation.~to the arrangement with Standard
Chartered and the partnership in relation to the

documentation involved. The intention to be

obviously was that the moneys were available to

the business trading as Radio Electrix .... .

Q~	That business was Walker Stores .... .
A.	From January 82.
Q.	So Walker Stores Pty Ltd had the benefit of

those moneys until such time as they were repaid.

A. That's correct.

AlT8/8/VH	39	23/8/88
Hungerfords (2)

Q. Did Walker Stores Pty Ltd pay the partnership

for the business when it took over.

A. It didn't pay any goodwill component - it

paid $100 goodwill component, other than that

the stock and everything was just book transfer.

Then there is some questions about value. So a

company took over the debt, but if one goes back to

this sheaf of printed figures which I gave Your Honours

and one looks, for example, at page 93, one has

here an overpayment in March 1981 of $8800 interest on that for the rest of 1982. At the end of 1982 the

company takes over the Mutual Acceptance debts and

the company takes over the business. Then there is

a refund in July 1982 but there is still $2067 worth

. .

of interest which then is operated on for the

balance of the pages.and at 17, 21, 21, 18 and so on

per cent down the page, interest is charged from time

to time on that outstanding $2000 although the

business is now carried on by a company. The debt

to Mutual Acceptance is owed by the company and

there is simply no basis for saying that the

individual partner is suffering that loss at all.

The same happens in relation to the ones which

are not repaid. If Your Honours go, for example,

to page - - -

DEANE J:	Why did you say the debt to Mutual Acceptance was
owed by the company - - -
MR BENNETT:	From the evidence I just took Your Honours to.

DEANE J:  It said it was owed by the partnership.

MR BENNETT:	But he corrects that, Your Honour, on the next page.
DEANE J:	I am sorry, I missed that.
MR BENNETT:	Because he says - he first says that - he says:

The partnership would have owed the moneys -

at line 31. Then at the bottom of the page he is

asked the question again, with the the indication:

If you don't know, say so.

And he says:

I am not quite sure to be perfectly honest.

Then on the next page he is asked at line 9:

Walker Stores Pty Ltd had the benefit of those

moneys -

AlT8/9/VH	40	23/8/88
Hungerfords(2)

that is the borrowings -

until such time as they were repaid.

A. That's correct.

I think there is some other evidence about it which

- I think in Mr Whitbread's evidence it may have

been discussed, too. I will just have that checked.

DEANE J: Further down, he says he does not know.

MR BENNETT:  Yes, but I think Mr Whitbread did deal with it

and I will have that checked.

DEANE J:	I see.
MR BENNETT:	But certainly, my recollection is the company

took over the liability and I think Mr Whitbread

makes that clear, but I will check that. If
Your Honours go to page 87, Your Honours will see

one which is not repaid, not refunded; it is

$4378, and the compounding continues without any

particular regard to the change between

December 1981 and January 1982. It is continued

to - the dependents are discharged at the same rate

although it is the company which is now trading

and no doubt earning ~he high rates of profits

and it is the company which is indebted to

Mutual Acceptance.

BRENNAN J: Did the company pay any tax in excess of what it

ought to have paid?

MR BENNETT:  No, Your Honour, no. The matter was found out

around the same time as the company was incorporated

and in the following years there was no longer any

problem.	I think that it was 1981 that the problem
was solved.

BRENNAN J: Were the moneys paid back by the taxation office

after the company acquired the business?

MR BENNETT: Yes, Your Honour, to the individuals ..

BRENNAN J:  To the individuals.

MR BENNETT: Yes. But, as I say, we do not know - I have

asked my junior to check this - whether there was

any evidence that they put the money back into the

company.

BRENNAN J: Yes.

MR BENNETT:	But we would submit it would not matter whether they did or they did not. This is not a wholly-owned
company.  One can t!nderstand that if a man ow11s all

AlT8/10/VH	41	23/8/88
Hungerfords (2)

the shares in a company beneficially and a wrong

is done to him and, as a result, the company suffers

damage, one can say that he has suffered part of that

damage. So if Qne injures the one man of a one-man

company and he is unable to work and, as a result,

the company does not earn any money over a period and

he receives nothing from it, one does not need to

lift the corporate veil in order to see that he

has suffered as a result of his injury, it is

simply a matter of working through the effects of

that injury.

(continued on page 43)

AlT8/ll/VH	42	23/8/88
Hungerfords(2)

MR BENNETT (continuing): But where one has, as here, a

company with no evidence as to what interest the

plaintiffs had in it except we know that it

operated under a trust - we do not even know

if it is a unit trust or a discretionary trust -

and that the partners and their seven children

were the beneficiaries and we do not know what

dividends were paid to whom by the trustees

from time to time, it is probably not an

unreasonable assumption that the children were

at least given the amounts up to the minimum
tax threshold during the years when that would
make a difference but that is, of course,
inference, not evidence, and again, one does

not know if it is discretionary or unit in the

trust. Usually, of course, these things are

discretionary.

How can one say that the partners have

suffered damage? It is a classic case, we would

say, of people choosing to conduct their affairs
through companies, obtaining therefrom certain

advantages and as a result suffering certain

disadvantages. The clearest place where that is

put is in the decision of Mr Justice Sangster

in a case in the Supreme Court of South Australia,

CONCRETE SYSTEMS PTY LTD V DEVON SYMONDS PTY LTD

(1979) 47 FLR 1 at 14. This was a case where

there was an infringement of copyright in plans

of a dwelling house and the profit that the

plaintiff would have made, had its plans not

been infringed, was only partially the profit

of the plaintiff, but was partially the profit

of various associated companies which made money

from building the house, from providing other ·

services and ancillary services in relation to

the use of the plan. His Honour, in explaining

that it wouldnot be entitled to those damages,

said at the very last page, page 14 from the top

line on the page:

In my opinion, if a proprietor chooses to

operate by means of a group of companies

(obviously for some purpose advantageous

to himself) he cannot complain if the means

chosen by him to derive such a purpose

deprives him of some other advantage which

he might otherwise have had - such as, in

this case, damages for loss of profit on

building and selling houses, and not merely damages for allowing, for a fee, the use of plans.

Now that is a good example of the type of case

where one cannot, we would submit, lift the

corporate veil.

It does not really require authority to

say that SALOMON's case is good law. The case

AIT9/l/JM	43	23/8/88
Hungerfords(2)

relied upon by His Honour in the Full Court for

lifting the corporate veil, as they indeed

described it, is the decision of the English Court

of Appeal in D.H.N. FOOD DISTRIBUTORS LTD V TOWER

HAMLETS LONDON BOROUGH COUNCIL (1976) 1 WLR 852.

But that was a case where the damage that was

suffered due to the resumption was entirely suffered

by a wholly owned subsidiary. So there is an

obligation to compensate the head company and part
of the damage it suffers is damage in a wholly owned

subsidiary. We would submit in that case it is

much easier to lift the corporate veil than in other

cases. There still may be a question as to

whether it is the same amount and that is why

we suggest the case may well be wrong. It is a

decision in which Lord Denning says this, at page 860 -

it is a fairly short passage. It is really unnecessary

for the decision, we would submit:

Third, lifting the corporate veil.

A further very interesting point was raised

by Mr. Dobry on company law. We all know

that in many respects a group of companies

are treated together for the purpose of

general accounts, balance sheet, and profit

and loss account.	They are treated as one
concern.

He refers to the trend in Gower on Company Law:

This is especially the case when a parent

company owns all the shares of the

subsidiares - so much so that it can	control
every movement of the subsidiaries.	These
subsidiaries are bound hand and foot	to the
parent company and must do just what	the
parent company says.

And he instances HAROLD HOLDSWORTH V CADDIES: So here. This group is virtually the same

as a partnership in which all the three

companies are partners. They should not be

treated separately so as to be defeated on

a technical point. They should not be

deprived of the compensation which should

justly be payable for disturbance. The

three companies should, for present purposes,

be treated as one, and the parent company D.H.N. should be treated as that one. So

D.H.N. are entitled to claim compensation accordingly.

Now, we would submit if it says any more than I

have just submitted, namely that where a holding

company is entitled to compensation and its

subsidiary is the one that suffers it, one may be

able to say that the whole or part of that is damage

AIT9/2/JM	44	23/8/88
Hungerfords(2)

suffered by it. If it is saying any more than
that,we would submit it is simply wrong.

We have listed a string of recent cases in Australia, which I will not take Your Honours through,

but in which the courts again and again have said:

there is no entitlement to lift the corporate veil;

one must treat companies as individual entities;

one must look at them separately and work out what the

rights and liabilities are. Unless one finds a

sham or a situation of that sort, one cannot do it.

The sham exception is the type of case where a

person convenants not to compete and then it competes

in the name of a company and in that situation - in

GILFORD MOTOR COMPANY V HORNE, as Your Honours will

recall - one does not lift the corporate veil; what

one says is, "The man is in breach of his covenant

because of the activities he is engaging in through

the company", which is not quite lifting the

corporate veil. The test, of course, the thing

which illustrates that one is not lifting the

corporate veil, is that one cannot reverse the

GILFORD MOTOR COMPANY V HORNE principle. If

John Smith Pty Ltd, a one-man company, covenants

not to compete when it sells a business and the

one man, John Smith,then does, the' company cannot

be guilty of any breach of covenant. One cannot

lift the corporate veil that way. One can only

do it if John Smith covenants and he in fact is

the person who is carrying on the business physically

although there is a company there.

These cases are all in a range of areas; there are tax cases, there are criminal cases. The

most detailed discussion of it is by Mr Justice Young

in the last of these cases in PIONEER CONCRETE PTY

LTD V YELNAH PTY LT~ (1986) 5 NSWLR. 254, where

His Honour stresses that the duty of a court is to apply the law to a corporate structure as it

finds it. The passage is at page 264 to 265.

On page 264 His Honour analyses the cases under

different headings.	He refers to an earlier case,
which seems to be a sham-type case, at Bon 265,

where he says:

that some directors took the view -

in that case -

" ... the family motto of the Ward,

Hargreaves and Armstrong families should be

'Les Compagnies Ces Sont Nous et Nouse Sont

Les Compagnies' .

And he says how they are all treated as one for

all purposes. But even that, he says, gives rise

to problems and in his conclusion at the end of that

analysis he refers to criticism of the D. H. N. case

AIT9/3/JM	45	23/8/88
Hungerfords(2)

and says that the case cannot be taken too far.	The
conclusion is at page 267, line 5, where he says:

In my view the plaintiff's submissions take the DHN case too far and it is

only if the court can see that there is in

fact or in law a partnership between companies

in a group or alternatively where there is a

mere sham or facade that one lifts the veil.

The principle does not apply in the instant

case where it would appear that there was a

good commercial purpose of having separate

companies inthe group performing different

functions even though the ultimate controllers

would very naturally lapse into speaking of the

whole group as "us".

Well, here it is not a group. It is just six people

carrying on business in partnership who form a

company under which the beneficial interest is

directed towards their children, or at least in part.

Now clearly that is a case where there is a good

purpose for doing that, a fairly obvious purpose

and a normal purpose. We would submit that there

is no question of sham. Indeed, there is no

evidence on which one would even start thinking

of sham in this case. One cannot say, "True it

is the company took over from the partnership, but

it was still the same people.	Let's just ienore
that and go ahead. "

That is what the Courts seem to have done.

The Full Court dealt with the question of corporate veil at page 519. At line 6 the Chief Justice says:

It is now necessary to consider the

effect (if any) upon the loss to the appellants

flowing from the respondents' breach of duty,

of the incorporation of the business on

1st January 1982. Since that date the business

has been conducted by a company, Walker Stores

Pty Ltd. At that date the company took over

the assets and liabilities including the debt

to Mutual Acceptance.

That seems to be the answer to the question I was

asked earlier by Mr Justice Deane.

The company is a mere trustee of a family

trust whose beneficiaries are the partners

of the former business and their children. The three male appellants are directors of the company. It is clear that the new legal

structure made no practical difference to

the conduct of the business or the

distribution of its profits. Prior to

incorporation the three brothers carried on

AIT9/4/JM	46	23/8/88
Hungerfords(2)

the business for their own benefit and,

viewed practically, no doubt that of their

families. After incorporation they continued
to carry on the business, but now through
the medium of a company, and their families

were capable of participating in the profits

legally through the legal structure of a
trust rather than as before participating

by virtue of the familial structure

Nevertheless Mr Perry has argued that from

1st January 1982 any losses were those of

the company and are irrecoverable by the

appellants. The basic legal principle is,

of course, that laid down in SALOMON & CO V SALOMON 1897 A.C. 22. A company is a legal

entity distinct from its shareholders .....

There have been, however, a number of

instances in which the Courts have been

prepared "to -

lift -

the corporate veil"

And a number of cases are referred to. Then he

says:

It is clear that this loss fell on the appellants throughout.

This is at 521, line 23:

The intervention of the company after 1st January

1982 made no practical difference. It would be

unjust to deprive the appellants of the damages

justly due to them by reason of the technicality

that, whereas prior to 1st January 1982 the loss

fell directly upon the appellants and through

them on their families, the loss after 1st January

1982 fell initially on the trustee company and

only derivatively upon the appellants and their

families. The loss continued to fall in reality

upon the same people.

They guarantee their debts and their duty was in

contract and tort:

and the law would be in an absurd and unjust

state if it prevented them from recovering

the whole loss.

We would submit, with respect, that is simply

wrong. One cannot lift the corporate veil in that

way. Apart from anything else, to say that the

ultimate benefit previously went to the families of

the six people because of the family connection,

and therefore there is no· difference, is to fall

into exactly the fallacy referred to by Lord Wright 1n

AIT9/ 5/JM	47	23/8/88
Hungerfords(2)

LIESBOSCH, where he says if you do a financial

injury to someone and he then becomes bankrupt

and his children lose educational opportunities

and are unable to enter a career, that is not

the sort of damages the court looks to. Clearly

the children could not have sued even if they

suffered some loss through the appellants having

less money and why, one asks, should they be able

to, in effect, sue or have the benefit of an action

after 1982? This is a case where if there was

a continuing loss all those years after the event

it was a loss that was suffered by the company,

or at the very least, capitalized in the partners'
hands by the taking over of the business at

valuation, in which case the partners had a lump

sum loss as at that date and they should be

compensated in the normal way by the 10 per cent

normally awarded by the court, or whatever figure

is awarded by the court from time to time. The

10 per cent adopted by Mr Justice Bollen, we would

submit, is generous and certainly adequate. It

is not as if, on his figures, they have been deprived

of interest after that date. But we would submit

that there is no basis for any interest after that

date at all. If there was, it should be on that

basis. But one cannot find anywhere a basis for

giving them the higher rate, the 18 and 21 per cents
after the company took it over.

Your Honours, those are the submissions for the appellant. If the result is in the appellant's

favour to the extent that Your Honours are persuaded

that Mr Justice Bollen's decision was correct, then

the order is an easy one. If Your Honours are

of any intermediate view, it is clearly undesirable

that any of the fairly difficult calculations

should be done in this Court and we would suggest

that the appropriate course is when judgment is

delivered to allow the parties some ·,pe--riod,	say 28
days, in which to agree on the figures in accordance with Your Honours' reasons. If that
proves impossible, the matter would no doubt have

to be remitted to Mr Justice Bollen to work out the

detailed figures. I think I am correct in saying

they all could be worked out from the blue book

upon most of the possible permutations and results,

but if that is not the case, no doubt it can be

dealt with in that way. May it please the Court.

MASON CJ: Thank you, Mr Bennett. Yes, Mr Gray?

MR GRAY:	May it please the Court, I pass the outline of
argument to the Court.

MASON CJ: Yes, Mr Gray.

MR GRAY:	May it please the Court, might I start in the
sixties? In the sixties in South Australia there
was a company, Radio Rentals. There were two

AIT9/6/JM	48	23/8/88
Hungerfords(2)

personalities involved in that company. One was

a manager, a Mr Kelvin Walker, the father of the

participants of the later partnership, and another

was the firm Hungerfords, who were the accountants

and auditors for the business, Radio Rentals.

Radio Rentals ran a rental business both in Adelaide

and in country areas. One of those country areas

included Murray Bridge. In the early 1970s a
decision was made to dispose of that aspect of the

business and Mr Kelvin Walker saw the opportunity

to assist his sons. He introduced his sons to

the Radio Rentals business by having one of them

work in the business to learn its get-up and style.

He also introduced his sons to Hungerfords. And

thus it came about that when the sons took over,

by way of partnership, the Murray Bridge operation

of Radio Rentals, they came to run it in the same

way as the Radio Rentals business.	They came to
use the same accountants, Hungerfords.	They came

to use the name Radio Electrix. They also used

a bookkeeper, a Mr Barr, who was an employee of knowledge to both parties.

Thus it came about in the early 1970s that

the firm Hungerfords, as the accountants and auditors of Radio Electrix, the partnership,

had an intimate knowledge of the business in its

infancy,of its special nature and requirements
and also of the special requirements of the partners
in the new business. And the evidence shows that
the sons of Kelvin Walker went and spoke to

Hungerfords, he having told Hungerfords to look after the boys, and Hungerfords became an early adviser

in regard to the partners. It is against that.

background that it is submitted, and was found,

that Hungerfords had some special knowledge relevant
to the application of the second limb of the rule

in HADLEY V BAXENDALE.

Court pleases, with the nature of the rental Now, might I just stay for a moment, if the business? It was described as having an insatiable

appetite for money. Essentially it had four

components. The first was to borrow moneys, the

more the better. The second was to purchase goods from those borrowed moneys. The third was to rent

those goods to the consumers and the fourth was
to gear the rental at such a figure that it showed

an excess over the rate of borrowings, and hence

a profit. That was the business of Radio Rentals

and that was the business of Radio Electrix and

out of that-an understanding of that business,

coupled with a constant pressing demand by consumers,

one can understand the growth of this business from

borrowed funds.

The partnership started out with small borrowed

moneys, in the tens of thousands, and some 12 or 13

years later its borrowings were of the order of $2 million.

AIT9/7/JM	49	23/8/88
Hungerfords(2)

This, shortly put, is not any case of an

impecunious plaintiff. It was a case of a need

for money brought about in regard to a prospering

business where the plaintiffs' rewards were
constantly being put back into the business.

As was acknowledged by the Hungerford witnesses

called, they were well aware of these critical

features of this business and of the very special

requirements it had for growth and they were

well aware from day one that the partners were

putting every penny they could back into the

business and drawing out an absolute minimum.

The plaintiffs, the respondents before Your Honours,

rely on that intimate knowledge of Hungerfords about

the business and the partners.

..

There is no issue in this case that there

was a duty of care as a matter of contract and

tort. If the Court pleases, it was pleaded that

a duty was owed in contract,at page 8 of book one,

by paragraph 10 of the statement of claim and

that was admitted by paragraph 10 of the defence,

at page 16. Thus, this is a case where there is

admitted, as a matter of contract, to be a duty
to take care and it is trite to say that by reason

of the professional relationship there also arose

a duty in tort. If the Court pleases, we make

that point because, in our respectful submission,

logically one must follow through both avenues

of assessment of damage and that this Court's

remarks in the HAWKINS' case have no application

to the issues joined to the case at bar.

If the Court pleases, from the plaintiffs'.

point of view it was always their case that whether

viewed in contract or tort the end result was the

same as far as damages were concerned in the special

circumstances of this case. But they say, as a

matter of law, that having both causes of action

open to them they recover on the more favourable

basis if there be a difference.

If the Court pleases, there was unchallenged

evidence from two of the partners called for the

plaintiffs as to what they said would have happened

with the moneys that had been over-paid. They

simply said it would have been used in the business.

That evidence, we repeat, was not challenged.

Having said that, they also gave evidence, unchallenged,

that they put all available funds they had from their

own resources into the business and they explained to

the trial judge that it was critical to their

credibility with their financier that they be seen to

be putting their money in alongside the financier's

and that if they were to seek to withdraw their

money, the financier would lose interest in their

business.

AIT9/8/JM	so	23/8/88
Hungerfords(2)

The third factor relevant to the question of what would have happened to these over-payments

had it not occurred is that when there was

partial recovery, what happened to it? At that

time it came to the partners and ~vas immediately

returned to the business, at that time being run

by the company.

(Continued on page 52 )

AIT9/9/JM	51	23/8/88
Hungerfords(2)

MR GRAY (continuing):  So the plaintiffs' case was, on

their sworn testimony, "This is what we would

have done with the money; second, this is what

in fact we did do with our spare money; and,

third, when we had a recovery that was of the

order of $140,000, it was immediately applied

not to our private purposes but to the business."

I will come back to the factual analysis

of incorporation later but might I just tell
the Court this, that the plaintiffs' personal
liability in respect of the debt continued on

notwithstanding the incorporation and the company running the business. The financie~ by documents that I will come to, plainly spell out that they

held the plaintiffs to their personal liability

and required guarantees in respect of any future

advances.

So there was no relieving of the plaintiffs

of their debt by reason of incorporation. In

our respectful,o/ submission, when we come to that

point, it is that the plaintiffs' liability in

respect of the debt remained throughout and the

company, too, took on the debt as well. If the

Court pleases, the moneys which were undoubtedly

lost to the business - and I will identify those

precisely in a short while - could have been

used in practical terms in three ways: they

could have been used to retire the most expensive
debt - that is one possibility; a second possibility

is they could have been used to limit the extent

of further borrowings - that is, in respect of

a closed period, ~be used in substitution of

further advances from their financier; and the

third alternative was they could have been used

in addition to all borrowings, for the borrowings

continue unabated and this is simply a further

capital injection into the business. They are

the three possibilities.

If the Court pleases, in terms of the cost

through that not happening, the first alternatives
lead to the same result, whether one retires
the most expensive debt or limits further borrowings
the cost is the same. The third alternative

was to use it in the business in addition to

borrowed moneys and, on the evidence, that would

have produced a better return. The plaintiffs

contented themselves with saying to the court they were prepared to accept the rate paid to their most expensive financier as being the value

of the loss of the use of the money. They did

not seek anything further, although on the evidence,

in particular through an exhibit that is not before

Your Honours, but exhibit Pl, it is plain that

after all financing was paid there still was

AlTl0/1/ND	52	23/8/88
Hungerfords(2)

a profit in the business and His Honour

Justice Bollen found that the business prospered.

And there was a wealth of evidence before

His Honour that not only did the business prosper

but it prospered more and more as time went on.

If the Court pleases, the negligent act of

Hungerfords led to an overstatement of taxable

income for some seven years. That overstatement

of taxable income led to an overassessment of

tax, primary tax, and provisional tax and that,

in turn, led to an overpayment, we sa½ for seven

years. There was a change of accountants and
he was able to extricate the partners from their

problems in the seventh year and arrange for

a reassessment. So the implications of the seventh

year of error were avoided by the actions of

Mr Whitbread.

But it left six years of overpayments to

1982, confronted with the situation, the Court would see this, that he was then faced with there being, in fact, an overpayment of primary tax of in the order of $190,000 and an overpayment of provisional tax, year by year,

be considered and, if the Court pleases, if the accountant in

with a recoupment year by year of a total sum

of the order of $160,000.

So the consequences of the negative act,

with a loss of use of moneys, much more than

$47,000. The $47,000 represents but part only

of the direct consequence of the negligent

accounting. If the Court pleases, the plaintiffs

were not aware of this situation until 1982
when Mr Whitbread, their accountant, brought

matters to their attention. So in terms of what

they could or could not do, nothing relevant

happens until 1982. That is when they first

became aware that they had been needlessly passing

money to the commissioner.

And it is as though money that was in the

business, was in the trading account of the business,

was to be used in the business, was taken out

of the business and simply unnecessarily put

to one side and not available. Once the plaintiffs

became aware of overpayment and the extent of
it they took immediate steps to effect what recovery
they could and, as I have put to the Court, they
recovered, as Justice Bollen finds, of the order
of $140,000 and immediately that is applied to

the continuation of the business.

Against that background, can I take the

Court to the money sums involved. And I do so

AlTl0/2/ND	53	23/8/88
Hungerfords(2)

against this background, that Justice Bollen

was presented with what my learned friend has
described as the blue book - there were several

of them. One dealt with primary tax, one dealt

with provisional tax.	And essentially, those
books were constructed in this way.	They started

with, as it were, one sheet of paper that showed

the end result when all the threads are drawn

together. And behind that there were, in effect,

all the detailed workings down to the very last

line. And behind that there were then photocopies

of the relevant prime documents that had been

used. And thus, it could be seen by anybody

who worked through it exactly how the loss was

calculated, line by line, and, not surprisingly,

it came to be agreed that, mathematically, these

calculations were correct and were based on the

documents they were said to be based on.

For practical purposes, if the Court wishes

to understand it line by line, one can work through
it but the end result is plain and Justice Bollen

sets out the end result in his reason for judgment.

Could I invite the Court's attention to book three,

page 471. I start at that page because the Court

will there find, in a convenient form, the claim

of the plaintiffs. And I simply identify · to

the Court the three aspects now in issue as far

as overpayment is concerned: 14.1 is the
primary tax unrecovered: 14.2, the interest
financing charges on the primary tax paid and

recovered for the period that the plaintiffs

were without it and on the primary tax ~aid and

not recovered - both those amounts are 1n 14.2; and the provisional tax, all of which had been. recouped - the overpaym~nt .that has bee~ tecouped

but the intetest factor~is in 14.5.

_ The.Court will see that in the alternative there was a claim

pursuant for statutory interest and several other

alternative claims. Then, if the Court moves

through to page 475, the Court has Justice Bollen

taking into his reasons for judgment part of
the Whitbread exhibit in regard to the calculations.

And at 475, line 20, the Court will see the basis

of the preparation of the schedules are set out

and, in particular, the restitution principle

has been applied on the basis of the retirement

of the most expensive debt. That is the basis

on which the calculation proceeds.

And then if the Court moves through to

page 476, the Court finds the summary of the claim in regard to primary tax but excluding provisional tax and it was the plaintiffs' case

and accepted that they be treated as one before

His Honour. So, in the final analysis, the

AlTl0/3/ND	54	23/8/88
Hungerfords(2)

individual losses have all been brought together.

And, if the Court pleases, in the first of the

columns, "Principal Tax o/s", the Court will

see for the first three years the principal tax

overpaid and not recoverable. The next three

are blank, I do not have the individual allocations,

but the total of the 1978, 1979 and 1980 years

there is of the order of $140,000, split between

the three with, it would be, increasing amounts.

But the figure of $140,000, if the Court

pleases, is mentioned by Justice Bollen. Then,

in the next column, one has the interest calculation
in respect of, for the first three years, on
the principal tax overpaid and not recovered
and then in respect of the next three years on
the principal tax paid but recovered. And the

last year the interest is less because the period

involved is less. And then in the right-hand

column there is a totalling. In terms of individual

subtotals the amount of interest running on the

principal tax overpaid and outstanding is $166,000

and the amount of interest on the principal tax

overpaid but recouped is $94,000 thereabouts.

The figure of $140,000, being the amount

recouped, is referred to at page 470, line 16:

The sum of approximately $140,000 was refunded by the Deputy Commissioner.

At page 477, His Honour makes his finding in

regard to provisional tax and the Whitbread

calculation at lines 19 to 21:

A later exhibit -

and that is an exhibit that is in fact in the

appeal book -

prepared by Mr Whitbread showing how he

calculated the sum of $74,341.07 for this

item or component was received into evidence.

And the Court will find that dealt with at the

transcript book three, at page 361.

WILSON J:  Do these schedules show when the $140,000 was

refunded?

MR GRAY:  Yes, they do. It is at various dates. They

start in about July 1982. But the schedules

do show, accurately, the precise day on which

the refund was made and the interest calculations

are adjusted accordingly. And my learned friend

referred to this accounting evidence when he

was dealing with his policy considerations of

AlTl0/4/ND	55	23/8/88
Hungerfords(2)

assessments of damages in this area and we would put to the Court that all that has happened with

this accounting evidence is that it has been

laboriously put down line by line to enable clarity

and agreement which, in fact, eventuated at trial

as His Honour has found and the whole matter

became uncontested as far as this calculation

was concerned. It simply was a putting together

of the relevant material.

Against that factual background, can I turn

to what, in our respectful submission, is the

correct approach as a matter of law to this case.

And I now take up, if the Court pleases, what

was the primary submission both at trial and

to the appeal court below as to interest being

recoverable as a head of damage. Our submission

to the court that the LA PINTADA case does represent,
as a matter of policy, a step that should be

taken, it has been suggested in New Zealand that

it does not go far enough and that the LONDON

CHATHAM case should go altogether, but it is

sufficient for our purposes to have its application

in this case in accordance with its terms.

And as my learned friend has taken the Court

to that case, I will not stay with it in detail

other than to simply state the obvious, that

that case allows, in appropriate circumstances,

for the recovery of interest as a head of damage,

in particular, as special damage within the meaning

of those words as used in HADLEY V BAXENDALE - the

second limb of HADLEY V BAXENDALE - and by special

damages meant a special loss foreseen in the

particular circumstances.

The House of Lords, in LA PINTADA, was at

pains to point out the injustices caused by the

old rule but felt constrained that ultimately

its complete removal was a matter for legislation.

BRENNAN J:  Do you say that it is interest that is claimable as a head of damage, does that mean that if there

had been no business being carried on by these

partners that there would none the less have

been an entitlement to interest?

MR GRAY:	Not so, if Your Honour pleases, because in that
circumstance it would not have been foreseeable that they would have, in the terms of the second
limb of HADLEY V BAXENDALE, have suffered this
particular loss. The critical feature in this
case is that there were facts upon which the
Court could proceed to deal with the matter under
the second limb of HADLEY V BAXENDALE. There
was special knowledge in Hungerfords which made

AlTlO/5/ND	56	23/8/88
Hungerfords(2)

this particular loss foreseeable. That was

inextricably tied up with the nature of the business

that was being run and the way that it was being

run. All of which knowledge was well known to

Hungerfords.

BRENNAN J:  Does that mean that it is the interest which

is claimable or loss of profits that is claimable?

MR GRAY:  Loss of the use of the money. If the Court pleases,

if the money would have been used to retire the

most expensive debt, if that be the finding of fact,

then the answer is that it is the interest that

would otherwise have been saved. That is one

and the same thing. One would say the use to

which the money would have been put would have

been to retire the most expensive debt.

BRENNAN J:  It seems to me there is perhaps a significant

difference between approaching it from the point

of view of saying, "Well, the primary damage.

which is recoverable is the lost tax and on that

under one head or another of damages. 1 and saying	you add interest and then the totalitx is recoverable
that, "What is necessary to put a person back
into the same position is the money back plus the loss of use of that money during the meantime."

MR GRAY: Yes. If the Court pleases, we put the submission

that it was a direct consequence of the negligent

act that not only was there an overpayment of

tax but that there were business losses as well
and, on that basis, we distinguish such cases
as - or the remarks of Sir John Latham in the
case my learned friend referred to, that we are
here talking about the negligent act causing,
not only the overpayment of tax but immediately

the loss of use of that money in the business

with the effects that that.carried. And all of

that being absolutely crystal clear to Hungerfords

who were the advisers at the time and knew of

the special circumstances.

And that is the basis, if the Court pleases,

that the Full Court, in particular the Chief Justice,

reasoned and allowed the recovery of damages

in this case. But if one starts with the proposition

that it was foreseeable that these moneys would

be used in the business then one has to consider
the possibilities, would it have been used, as
the plaintiffs said, to retire the most expensive
debt or otherwise limit the borrowings,or would

it have been used in addition to those borrowings

in the business. And one needs to logically

answer that question before one moves on.

AlTl0/6/ND	57	23/8/88
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But in the case at bar because the plaintiffs

said and demonstrated that this business prospered,

and was profitable, and were prepared to accept

the interest rate paid to their financier as
being the measure of their damage, it did not
become necessary to consider further the question

of what profit could have been earned by the

money .. or .as the Chief Justice, Chief Justice King,

put it,· he said that because the business was prosperous, because they were making money, it follows that their loss could not be less than

their most expensive debt otherwise they would

have simply retired the most expensive debt.

That would have been the most advantageous way to use their moneys.

Justice Jacobs dealt with the matter more in line with the plaintiffs' direct submission

At pages 525 and 526 of the appeal book, the very last line on page 525, His Honour says:

It would have been used, at least to a

substantial extent, in the most advantageQus

way for the benefit of the business, either

by lessening the reliance on borrowed funds

to sustain the working capital, or else
to augment the working capital for the purpose
of generating turnover and profit at a rate

which justified the high c9st of borrowing

funds at their existing level from time

to time.

So the plaintiffs come to this Court and the

other courts as saying they are looking at the

matter from the best point of view from the defendants'

point of view and they are prepared to take that

figure rather than embark on the very difficult

exercise of dealing with just what profits would

have been earned precisely which, in the nature of things, was a very difficult task other than to say it would be more than what was paid to

Mtitual Acceptance. Otherwise the business,

instead of prospering, would be going poorly.

In fact, it prospered to the extent that it could,

in fact, cope with the very substantial overpayments

of tax and provisional tax required of it. It

coped with that and still prospered.

And if the Court pleases, it is against

that background that the court below proceeded
to assess the damages on an application of the

second limb of the rule in HADLEY V BAXENDALE

as dealt with and explained in LA PINTADA. We

put the submission to this Court that we have

here an agreed contract, an agreed term, we have

a breach that is not challenged, we have special

knowledge that has not been challenged by my

AlTl0/7/ND	58	23/8/88
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learned friend; we have thus a meeting of the

second limb of HADLEY V BAXENDALE and thus we

have proved the case.	So that is our simple
point in contract.

If the Court pleases, the LA PINTADA decision

has been referred to in two New Zealand cases:

one Court of Appeal decision of BROADBANK V MOSGIEL

and the second a single judge decision of CALLANDER

V MURPHY. In the Court of Appeal decision, the

comments of the court were by way of dicta and the

court was able to avoid the particular point

for other reasons. Could I pass to the Court

copies of the decision of BROADBANK. If the
Court pleases, the relevant treatment and the
dicta are found first in the judgment of

Justice Casey - I will go first to the judgment

of Justice Richardson on appeal at page 272 and

I invite the Court's attentio~ not to stay and

read, from 272 to 273. Then, in Justice McMullin's

decision, commencing at 274 line 30, proceeding

through to 278 when Justice McMullin traces the

Tll	whole history of the development and, in particular,
the passage I invite attention to is at the foot of 277 and the top of 278 - line 47 at 277:

As it happens -

says His Honours -

this appeal can be decided in favour of

Broadbank on the authority of COOK V FOWLER

alone, and the PINTADA case does not detract

from the principle it established. But

were it necessary to decide whether the

rule of commercial law for which LONDON,

CHATHAM AND DOVER RAILWAY is an authority,

should be allowed to remain, leaving

"creditors with a legitimate sense of grievance

and an obvious injustice without remedy" -

citing Lord Roskill -

I would be minded to hold that this Court

should now free itself from the shackles
of a rule which owes its origins to the

commercial thinking of the mid-eighteenth
century.

(Continued on p~ge 60)

AlTll/1/ND	59	23/8/88
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In New Zea land we rightly pay the

greatest respect to decisions of the House
of Lords, although they are not technically

binding. But the legislative history which

inhibited their Lordships in the PINTADA

case from departing from the principle laid

down in LONDON, CHATHAM AND DOVER RAILWAY

does not exist in this country, and it is

appropriate now to take stock of that fact.

As long ago as 1780 and 1826 Judges of the

eminence of Lord Mansfield and Best CJ

deprecated the rule. Since then Judges
of great standing have deplored its existence,

but the binding force of precedent viewed

against a divined policy of non-intervention

by the legislature has decreed its continuance

in England. In today's commercial world,

one of high interest rates, it seems somewhat

unfair that a creditor should be prevented

from recovering interest eo nomine. Therefore

if it had not been possible in this case

to apply COOK V FOWLER I would have been

inclined to confront this issue and now

lay down a rule having more commercial reality,

LONDON, CHATHAM AND DOVER RAILWAY and PINTADA

notwithstanding.

So that as a matter of principle and policy

is a course we invite this Court to take up.

Justice Somers dealt with the matter at page 279.

And the second of the decisions, the single

justice decision, Justice Thorpe in CALLANDER

V MURPHY - I provide copies for Your Honours~

that was a case that on the facts dealt with

a failed contract for sale of land very similar

to the WADSWORTH V LYDALL factual situation and

Justice Thorpe dealt with the matter at page 211

and 212, in particular, 211 lines 35 to 40 and

then, more particularly, at 212 lines 20 to 30:

In my view the decisions noted to this

point would justify this Court, at least

in cases where the defendant defaulting

purchaser knew that the other party was

committed to a second transaction, allowing

as part of damages for loss on resale at

common law the actual loss incurred in

obtaining bridging finance, certainly I

can see no reason why the actual loss incurred

by an innocent vendor by way of overdraft

interest and bridging finance costs should

not in such circumstances be claimed as

special damages and so come into the rule

stated in PRESIDENT OF INDIA V LA PINTADA

CIA.

AlTll/2/ND	60	23/8/88
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If the Court pleases, other examples of courts allowing compound interest as a head of

damage can be found in the decision of the Court

of Appeal in WADSWORTH V LYDALL, in the decision
of ESSO PETROLEUM V MARDON, a warranty case as

far as contract is concerned, and then a South

Australian decision of MEDDICK V CUTTEN AND HARVEY.

MEDDICK V CUTTEN AND HARVEY concerned negligence

both in contract and tort against sharebrokers

and the sharebrokers neglected to see that the

investor~ money found its way to an insurance

company investment and the plaintiffs claimed
that they were entitled to be put in the position

they would have been but for the breach and they

sought from the court · damages being the value

of the investment in the insurance company as
at the date of trial and in the nature of things
that involved all the compounding advantages
of the insurance investment from the date when
the money should have been invested to the date

of trial and there the plaintiffs recovered the

full amount, including the compound interest

factor, both at trial and then on appeal in the

Full Court.

I invite the Court's attentinn in particular,

in that regard, to the decision 36 SASR 542,

f i rs t in the tr i a 1 j u d g e ' s j u d gm en t a t page s 5 5 8

and 559. The Court will see at page 558, at

point 4 of the page, that Justice White clearly

identified the nature of the lost benefit:

The plaintiffs lost the benefit of this

valuable investment in the interim, an

investment which would have yielded an

average of almost 16 per cent capital growth

each month after tax had been paid by the

fund and after management fees had been

deducted.

And the initial investment - it was a little over

of time to something of the order of $130,000 $100,000- would have grown in a fairly short space	because of the compounding nature of the investment.
And Justice White allowed damages in the full
amount. That matter was dealt with on appeal,
Chief Justice King taking up the matter at
page 566 and 567. At the foot of 566:

The intention of the respondents, as the

evidence shows, was to invest their money

in Sun Alliance Money Accumulator, a growth

fund administered by the Sun Alliance

Insurance Company. The evidence shows that

if their money had been invested in the

way in which they intended, it would, by

the date of judgment, have accumulated growth,

AlTll/3/ND	61	23/8/88
Hungerfords(2)

so that the sum would then have been worth

$130,974. The respondents, so far as the

evidence goes, had no intention of withdrawing
that money before the expiration of four
years and had no intention, therefore, of

suffering the discount which would follow

such an action.

And it is precisely that line of reasoning that

we invite the Court to follow in the case at

bar. We say that here, on the evidence, the
respondents' intention was to leave the money
in the business and they, in fact, had done that;·

they, in fact, did do that with the recovered moneys; had they done so, we have at the very

least what that would have produced for them

through Mr Whitbread's calculations and they

had no intention of withdrawing the money and

thus the damages should run.

Turning to the matter in tort, there are

numerous examples, again, of compound interest

being allowed as a head of damage. ESSO PETROLEUM

V MARDON involved negligent careless statements

and there was, in the Court of Appeal, an allowance

of overdraft interest incurred. This Court,

in the STATE OF SOUTH AUSTRALIA V JOHNSON specifically

approved ESSO PETROLEUM V MARDON on that point.

advice by a farmer on Kangaroo Island and the

Can I take the Court to that judgment, reported

only in Australian Law Reports, 42 ALR 161.

particular passage in the joint judgment of the

Court is at pages 169 to 170.	The Court, at
the foot of 169, stated:

The principle -

being that of restitutio -

The object is to restore the plaintiff to

the position in which he would have been

placed if the wrongful act had not been

committed. The measure will vary -

and referred to DOYLE V OLBY. But at point 5

page 170, the final sentence of the paragraph:

And in ESSO PETROLEUM CO LTD V MAROON the

plaintiff's damages included his capital

loss, the overdraft which he incurred in

running the business, loss of earnings and

interest.

And thus, in tort, thia Court, giving approval

to there being included within the assessment

of damages a component for interest and the

necessary consequences of an overdraft facility.

AlTll/4/ND	62	23/8/88
Hungerfords(2)

MASON CJ: Yes, but you need to bear in mind what is said

at the end of the judgment, that having regard

to the peculiar nature of the case and the way in

which it was conducted the Court was not determining

matters of principle.

MR GRAY:	Yes. If the Court pleases, we had not sought
to go into the facts of that case other than to cite the Court's approval of ESSO V MARDEN.
There are two further examples in tort that we
invite the Court's attention to.  One is the
case of MEDDICK, that I will not go back to, there being a duty in both contract and tort in that case. The other is the case of ARCHER V BROWN,
a decision of the Queen's Bench Divison, a case
involving fraudulent misrepresentation and, in
particular, we invite the Court's attention to
the remarks of His Honour at pages 276 and 277.
And we read from paragraph d:

I accept -

His Honour said -

of course, the plaintiff is confined to
expenses reasonably and properly incurred.

In this case the defendant assisted the

plaintiff, knowing how the first loan had

been raised. He cannot be heard to say

that liability to interest was not properly

incurred. Further, as to the arrangements
which were made at Kettering after the true

position was known, I do not think the plaintiff

had any choice.

He then went on to deal with an argument based on LIESBOSCH pointing out that the plaintiff's very problems in that case arose from the defendant's

conduct and hence LIESBOSCH could not be pleaded

to assist.	And then, through at page 277,
paragraph e:

Having reflected on the matter I am

satisfied that this was a non-issue. While

it is true that the measure of damages is

different in tort and in contract, it makes

no difference which measure one applies

in this case: the damages are the same.

The damages which flow from the defendant's deceit are no different from what must have

been in the reasonable contemplation of

the parties at the time of the contract.

The defendant knew that the money had been

borrowed from the bank. He must have

appreciated, if he put his mind to it,

(a) that the plaintiff would have to pay

interest at bank rates until the loan was

repaid, (b) that the plaintiff would find

AlTll/5/ND	63	23/8/88
Hungerfords(2)

it difficult, if not impossible, to repay,

certainly impossible to repay immediately,

(c) that the plaintiff would be deeply

distressed -

et cetera. And ultimately, His Honour goes on

to allow in his reasons at page 410 interest payable at the bank - page 410, paragraph g, the penultimate paragraph.

So, in fact, ARCHER V BROWN is a precursor

to LA PINTADA, as events turn out. In matters

in both contract and tort, special knowledge

was there and we seek to apply the reasoning

of that decision directly to the case at bar.

Might I turn to another set of cases in a different

context that we suggest may assist. They are

a series of single justice decisions in the

Federal Court dealing with claims under the

TRADES PRACTICES ACT, section 52, for misleading

and deceptive conduct and there, generally speaking,

although they are statutory damages, the test

is that of tort that is applied.

In a series of judgments that are listed

in the precis, judges have allowed interest
as part of damage and, in particular, I invite

~ttention to two of the cases: the first is

SANROD V DAINFORD, 54 ALR, a decision of

Justice Fitzgerald concerning an alleged breach of section 52 and the relevant remarks are at

page 191, at the top of the page:

Questions of both foreseeability and

causation enter upon the question of interest

on, or by way of, damages at common law:

see SIMONIUS VISCHER AND CO V HOLT AND THOMPSON

and it is by no means unlikely that similar

problems, however described, will have to be confronted in determining the ambit of

ss 82 and 87 of the Act.	An example ..... is
to be found in TN LUCAS PTY LTD V CENTREPOINT
FREEHOLDS PTY LTD.

However, whatever may be the position

otherwise in respect of damages under the

Act, I can myself perceive no difficulty

in accepting that, when money is paid in

consequence of misleading conduct, the loss

suffered by that conduct includes not only

the money paid but also the cost of borrowing

that money or the loss from its investment,

as the case may be: cf FRITH V GOLD COAST

MINERAL SPRINGS PTY LTD. Interest awarded

as a component of damages in such circumstances

is not for loss of the use of the money awarded

AlTll/6/ND	64	23/8/88
Hungerfords(2)

as damages, but for loss of the use of
the money paid over in consequence of the
misleading conduct and is directly related

to the misleading conduct.

And it is that distinction that we seek to apply

in the case at bar. We put the submission to

Your Honours that here the loss of the use of the money flows directly from being paid over to the commissioner as a direct consequence of the negligent act and we are not here seeking

interest on moneys awarded as damages.

(Continued on page 66)

AlTll/7/ND	65	23/8/88
Hungerfords(2)

MR GRAY·(continuing):  The second of the Federal Court

cases that we invite attention to is the decision
of Justice Lockhart in MILNER V DELITA, 61 ALR,

again a decision involving section 52 of the

TRADE PRACTICES ACT, for misleading and deceptive

conduct, and the matter is dealt with at pages 580

and 581. At page 580, line 35, His Honour deals

with some remarks of Justice Jenkinson, in particular

taking up Chief Justice Latham's comments from

the LAUNCESTON case my learned friend referred

to and also the New South Wales decision in

SIMONIUS VISCHER. Against that background he

then, at the top of page 581, contrasffi those

remarks to Justice Fitzgerald's remarks in FRITH

and SANROD and then, at page 581, line 28:

More recent attention has been given

to this question by Burchett Jin GEALE

V GLENBOUN HOLDINGS PTY LTD (in Liq) unreported,

23 August 1985 and by Beaumont Jin FENECH

V STERLING (1985) 57 ALR 98. Their Honours

expressed views substantially in accord
with those of Fitzgerald J.

I find myself in agreement with the approach of Fitzgerald, Burchett and Beaumont JJ

on this question. In my opinion when money

has been paid in consequence of misleading
or deceptive conduct, the loss suffered
as a direct consequence of that conduct

may include the cost of borrowing that

money or the costs of terminating an earlier

investment and, perhaps, other loss. It

must depend on the circumstances of the

case and this requires that evidence be

led to support any claim of this nature.

I also agree, however, with the proposition,

accepted by Jenkinson and Neaves JJ, that

loss suffered solely because of delay in

the payment of money ultimately held to

be due is not recoverable pursuant to

ss 82 and 87 of the Act.

We, of course, emphasize the word "solely" and

say that in this case the loss is suffered by

reason of a negligent act. We are not here

dealing with, for example, a case of simple

debt.

One can see how the law has developed from

the LONDON, CHATHAM case, which was a case of
simple debt, and expressions in that regard

are given wider scope, but the logic of the

LONDON, CHATHAM case has no application to a

case such as that at bar.

AI Tl 2/1 /SDL	66	23/8/88
Hungerfords(2)

In Justice Bollen's decision, he reviews

a number of the Federal Court decisions, including

those of Justice Jenkinson. If the Court pleases,
could I turn to point 3 in the precis, dealing
with the question of the tests of foreseeability

and remoteness and come back to the facts in

some pertinent respects.

We put the submission that in contract

the plaintiffs are entitled to recover losses

that are reasonably foreseeable at the time

of the contract. In the case at bar it was

established at the very least that the defendants

had the requisite knowledge of the plaintiffs'

special circumstances from the time when the

contract was formed, whether one views the relationship

as one continuing contract or as a separate

contract from year to year. The passages in

the evidence are short and we just take the

Court to them. In book two, in the evidence

of the Hungerfords' partner, Mr Raphael, at

page 211, the following evidence appears, starting

at line 20 - this is in cross-examination:

Q. You knew, didn't you, that it was a

particular business that relied very heavily

on finance.

A.	Yes.
Q.	And, in fact, the whole success of

this business is in being able to, whilst

you grow, have a financial backer who can

cover the capital cost to enable the growth

to take place.

A.	Yes.
Q.	And as long as the firm continues to

grow it has an almost insatiable appetite

for money.

A.	Yes.
Q.	So as far as you were concerned the

partners were having to, in effect, leave

as much as they possibly could in the business

and they were looking to draw out a minimum

to live and pay tax.

MASON CJ: Is this passage not recounted in the judgments

in the Full Court?

MR GRAY:  Yes, it is, if the Court pleases, and, in particular,

over the page, at 212, where His Honour the

Chief Justice did not continue:

AIT12/2/SDL	67	23/8/88
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Q. And how, quite frankly, you expected

their business to be run.

A. Yes.

Then, if the Court pleases, in the evidence

of Mr Norton, another partner of Hungerfords,

part of which is taken in by Chief Justice King

in his reasons, at pages 227 to 230. The passage

from the Chief Justice in his judgment at page 516

comes from page 229 but we would invite the

Court's attention to the entire passage from

page 227 through to page 230 and, in particular,

to a passage at the foot of page 230 when Mr Norton

agreed that from the plaintiffs' point of view

this was the position, line 30:

Q. So they either lost the use of that

money in their business or they had to

borrow to replace it: one of the two things

happened, didn't it.

A. Yes.

Q. So if you look at it from the Walkers'

point of view, to put them back into the
position they would have been had there

not been an over-payment of tax, you need

to restore that amount, don't you.

A. Yes.

That is against the background of Mr Norton

acknowledging that it was absolutely essential

to the growth of this business that they return

as much money to the running of the businss
as possible.

So the special knowledge of Hungerfords included the following: the intimate knowledge

of the business, its make up and structure going

will find a detailed treatment of that in	back to the time of its creation - and the Court	Justice Bollen's decision at pages 436 to 439;
there was the knowledge of Hungerfords' radio
rentals business and the way it ran and that,
too - the Radio Electrix business - the fact
of it being highly financed and the need for
money; and, finally, the plaintiffs' need to
leave as much of their money as possible in
the business.
Looking at the matter from a tortious point of view, one starts with a principle of restutio
subject to the rule of remoteness and we say
that on the evidence it was plainly foreseeable
for Hungerfords that there would be a loss of
use of the money. So when the matter is viewed
in tort there would be recovery.

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Could I just touch on the alternative treatment, that is damages for lossof use. The Court will

see that the Chief Justice, Chief Justice King,
adopted that approach to the matter and found

the use would have been on the probabilities

to use the money in the business in addition

to borrowed moneys. Justice Jacobs, in the

passage I took the Court to, has contemplated

the alternative of limiting the borrowings.

On either view,for the reasons we have put, the

result is the same. In fact one, the case

at bar, is a corollary of the other.

Might I, if the Court pleases, turn to the question of what we have headed, "Losses

. .	of the Plaintiffs", one part of which raises the question of lifting or piercing the corporate
veil. Our primary submission to the Court is
that the plaintiffs' personal liability continued throughout the relevant period. If the Court
starts firstly with the judgment of
Chief Justice King at page 521, line 32, the
Court would have noted that His Honour said:

The loss continued to fall in reality upon

the same people. Moreover, the appellants

not only remained liable for the debts

incurred by the partnership prior to the

formation of the company but personally

guaranteed payment of future debts by the

company.

That passage must be read, of course, with the

remarks that His Honour made at page 519 that

my learned friend referred to when he read:

At that date the company took over the

assets and liabilities including the debt

to Mutual Acceptance.

It did not take over the debt to the exoneration

of the plaintiffs, they remained as principally
liable.	The evidence in that regard, if the

Court pleases, is confused on the oral testimony.

My learned friend took Your Honours to the evidence

of Peter Walker when he made a fist of trying

to explain what had happened, but obviously

inadequately. But that was not to the point

because His Honour had the prime documentation

by way of written exhibit. In that regard we

invite attention to book two where a series

of documents are set out. Could I simply for

the moment identify the documents in their sequence

and then come to the particular document of

importance.

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Hungerfords(2)

The Court starts at page 240 with the initial

partnership agreement entered into in May 1973.

Then, at page 247, there is the intial contract

of loan between Mutual Acceptance Finance Ltd

and the then partners; at page 257 there was a deed that provided some collateral security

in regard to that loan - both those documents
being dated September 1973.

Then, at page 285, there is a further agreement between Mutual Acceptance Limited and the then

partners dealing with further advances and at

page 295, a deed that takes up now Standard

Chartered, the successor to Mutual Acceptance,

Standard Chartered, formerly Mutual Acceptance and

Q	it is this document, at page 295, that sets out the
pertinent matters. If the Court starts at page 296, there is an identification of the various parties to the deed and their definition and we are now
dealing with a document made 19 January 1984. So
there has been incorporation and the company became
involved in the business as at January 1982. On the
evidence, there were book entries made then that
effected a change and this deed deals historically
with all arrangements to that date and it, thus,
is a convenient reference in which to have
concentrated a history of the matter.

At page 297, having identified a number of

parties involved, there are some recitals and the

Court will see that recital (a) on page 297 deals

with the creation of the trustee and the trust.

Then there is an identification of those persons who were interested and beneficiaries in the trust. Having identified those matters, at page 298, paragraph (j) one starts a recital, historically,

of the loan arrangements and the Court will see

that there is a recital of a contract of loan of

24 September 1973, that being the document referred

to at page 247 to 256 dealing with the initial

advances of money by Mutual Acceptance and the

securities that were taken.	Paragraph (k) deals with the fact that that:
Contract of loan provided for further
advances -

Paragraph (1) recites some matters from a deed

that is not in the appeal book from June 1976 when

certain of the partners, the then partners:

Assumed a personal liability for all moneys advanced by Properties -

properties being one of the Mutual Acceptance companies.

AlT12/5/SH	70	23/8/88
Hungerfords(2)

And then paragraph (m) that between September -

it should be 73 not 83. It reads 83 - and

March 1977, various advances were made pursuant

to the contract of loan and then there has been

an agreement to reduce indebtedness by $300,000;

a further agreement in April 1978 to lend a

further $75,000 and that is the agreement at

transcript 285. At point (p) the recital of the fact that Kelvin Walker, the father is to

be released from guarantees.	He is wishing to
extricate himself from that guarantee.	So, against

that historical background, if the Court pleases,

it is a convenient document to go to to look to

the historical background of the documents and
the arrangements of the financier. There were,

then, matters agreed.

The first matter agreed is:

That as at the 31st day of December 1981,

the proprietors -

that is, just before the company took over -

were indebted to Standard Chartered and
Properties in the amounts and on the accounts

more specifically set out in the First Schedule -

That is at page 312 and it effectively deals with

the then outstanding advances totalling $415,000

and by paragraph 1.2, it is spelt out that those

advances and all the terms of the agreements that

relate to them:

Shall remain in full force and effect -

notwithstanding the release of Kelvin Walker. So, ·c

thus, the Court has the plain acknowledgement that
as at 1984, two years after incorporation, that the

personal indebtedness continues and we would

respectfully submit that my learned friend's factual

analysis that the company took over the debt is

wrong. It did not take over the debt at all. The

debt remained in the individuals. The company came

in as a further debtor and was deemed to be a
principal debtor and that appears, if the Court

pleases, at page 303, paragraph 2.3:

In order to give effect to these covenants

Standard Chartered and Properties shall be

at liberty to act as though Walker Stores

was the principal debtor and Walker Stores

hereby waives all and any of its rights .....

which may at any time be inconsistent with

these provisions.

A1Tl2/6/SH	71	23/8/88
Hungerfords(2)

So, the effect of the documentation is a ready acknowledgement that the personal liability continued and that the only way to get Walker

Stores in as a debtor was to deem it to be a

principal debtor. So, rather than any exoneration

of the plaintiffs of the debt, they remained as

much liable and then more was that they then had

to provide guarantees.

(Continued on page 73)

AlT12/7/SH	72	23/8/88
Hungerfords(2)

MR GRAY (continuing): So, the only way their business could

continue through the company was on the basis of

the:r providing personal guarantees and if the

Court follows it through, at page 305 through to

307, covenants concerning there being no change

in regard to the structure of the trust so that

only the partners and their immediate family can remain and be involved and then various forms of

collateral security were provided by the partners

and, in particular, a mortgaging of any amounts the

company owed them and other securities and the Court

will find those securities as a debenture from the

company, at page 318, a guarantee at page 344 and

a further deed from the individuals at page 353,

giving security over any moneys owing to them from
the company.

Now, if the Court pleases, we would respectfully invite the Court's attention to that document and its

terms, rather than the incomplete and obviously evidence

given through not a complete understanding by Peter

Walker. Broadly speaking, he did not differentiate

between the company and himself. He is very much

in the position of Mr Mardon in the case of

ESSO V MARDEN where he really was very confused about just what was what and there are a number of references

in that regard that I propose to take Your Honours to.

DEANE J: Did Mr Justice Bollen refer to the incorporation point

at all in his judgment?

MR GRAY:  Yes, he did, if Your Honour pleases. He dealt with

that at page 478 to 481 in book three and he dealt

with it solely on the basis of the - as he put it -

used modern parlance, "lifting the corporate veil"and

he found no need to take up the submission that was

put in the alternative that there was a personal

liability remaining on the plaintiffs. But at page

478, he starts the matter at the foot of the page:

The ghost of the late Mr Salomon stood at

Mr Perry's shoulder. Mr Gray said that

we could "pierce the corporate veil". He

referred to a number of cases in support

of that proposition. Of course, the phrase
"piercing the corporate veil" or the
out-of-date phrase "lifting the corporate

veil" is graphic and useful. The enquiry

is whether the intervention of incorporation in any way here affects the plaintiffs' case.

I mention four cases.

He then deals first with the DHN FOOD DISTRIBUTORS

case and the Court will recall that that was a case

AlT13/l/SH	73	23/8/88
Hungerfords(2)

in which there was a claim for land acquisition

and compensation and it was said against the claimants

that there was not a legal entity that could make the

claim and the English Court of Appeal swept that aside

by saying that they could look at the reality of the

position. The second of the cases that he referred

to was the decision in MAYLON V PLUMMER of the Court

of Appeal in which it was suggested against a widow

that the fact that she received her wage from a

one-man company rather than from - the husband - sorry. The suggestion was that there had been a company that played a part in affecting her dependency

and the court said, "Not so. The reality of the

situation was she was dependent upon her husband"

and it simply chose to look at the reality of the

situation, "lift the corporate veil".

The third of the cases was a trade practices

case, an unreported decision of Justice Smithers in

PATEK in which His Honour faced again the trader who

had incorporated but, in reality, he simply continued

to trade through the agency of a company in the same

way as the plaintiffs did in the case at bar and

His Honour there found that he could look to the

ultimate beneficial interest in the money and the

fourth of the cases was ESSO PETROLEUM V MARDON,

the case that my learned friend has invited attention

to.

DEANE J: In one sense, it is not lifting the corporate veil

at all, though, is it?

MR GRAY:	No.
DEANE J:	I mean, the plaintiffs are the only people who lost
the use of money.  It was their money. The question
is, really, whether a fair assessment of the loss
remains a reference to what the business which they
effectively owned would have used even after that
business became a business of a company which they
controlled.
MR GRAY:	Yes, we would adopt that, if Your Honour pleases and
we also say and we say, primarily, that the personal
indebtedness remained throughout and it is not to
the point that a company became an additional debtor.
They were affected because they required this recovery
to limit their liability under their personal debts
and guarantees and - - -
DEANE J:	If you look at it that way,in view of the findings,
although there may be something to be said for the
view that this Court should not really get involved in that question?

AlT13/2/SH	74	23/8/88
Hungerfords(2)

MR GRAY:	Indeed.
DEANE J:	It has been dealt with by both courts below.
MR GRAY:	Yes. Special leave was granted, really, on the
LA PINTADA point without this point being developed at special leave stage but, if the Court pleases,
we say that there are number of grounds upon which
this matter can be viewed and on each we would seek
the result our way, and the third of those is the lifting of the corporate veil, but the point about lifting the corporate veil is to draw a distinction
between, on the one hand, that class of case where the small trader who gets involved in running his
business through a corporate structure but he treats
it as his own and, in real terms, the only beneficiaries
of the company or the only persons to benefit are he
and his immediate family. That, on the one hand,
and the situation that has been dealt with in the case my learned friend refers to that the complicated
company structures are designed for quite a different
purpose and if the Court looks at the cases relied on
below, each of them, in particular, MAYLON. PATEK and ESSO, are all of the individual simply being, no doubt, advised
to run his business through a company but he, himself,
simply treats the company and himself as one.

The Chief Justice's reasoning, if the Court

pleases, is found at page 519 to 521. At page 519,

the Chief Justice deals with the historical matter

that:

The company is a mere trustee of a family

trust whose beneficiaries are the partners

of the former business and their children.

Then, having referred to SALOMON's case, at the top

of page 520, His Honour says this in a passage that

we respectfully support:

There have been, however, a number of instances

pierce the corporate veil: in order to do

in which the Courts have been prepared "to

justice where it is clear that the loss,

although nominally that of the company, will
fall ultimately and in reality upon the

individual plaintiff or plaintiffs.

So, it is a question of circumstances of justice

requiring the inquiry and whether, in truth, the

loss is but nominally on the company and where does

it ultimately fall. Having identified that legal

proposition and having then dealt with the cases,

His Honour takes up his reasoning in regard to the

case at bar at page 521, line 23:

A1Tl3/3/SH	75	23/8/88
Hungerfords(2)

It is clear that this loss fell on

the appellants throughout. The intervention

of the company after 1st January 1982 made no

practical difference. It would be unjust to deprive the appellants of the damages justly

due to them by reason of the technicality

that, whereas prior to 1st January 1982 the

loss fell directly upon the appellants and

through them on their families, the loss

after 1st January 1982 fell initially on the

trustee company and only derivatively upon

the appellants and their families. The loss

continued to fall in reality upon the same people. Moreover, the appellants not only

remained liable for the debts incurred by

the partnership prior to the formation of
the company, but personally guaranteed payment
of future debts by the company.

So, we would respectfully have taken up that very last comment and said that is· the starth-ig point if we

are doing our precis. As a personal liability

continues, the damages flow to the plaintiffs

directly. In the alternative, we say that one can

approach it by the lifting of the corporate veil in

the way the court did below, both on appeal and at

trial.

BRENNAN J: What was the loss of use of the money suffered by the individuals after the company was incorporated, after the company took over the business?

MR GRAY: Well, they still continued to apply all their moneys

to their business, now through the company. For

example, when they received the repayment of tax,

they immediately applied it to the business, by

paying it into the company.

BRENNAN J: And what did they get for that?

MR GRAY: Well, they ultimately get the returns that brings

to them as, or to their family trusts, on an allocation

of the profits.

(Continued on page 77)

AlT13/4/SH	76	23/8/88
Hungerfords(2)

BRENNAN J:	Did they get anything out of it in the end?
MR GRAY:	Oh yes. The business still trades profitably so - - -
BRENNAN J:	Yes, but did the individuals get anything out

of it in the end?

MR GRAY:	Yes, through the allocation of the family trust.
BRENNAN J:	But do we know what they got out of it?

MR GRAY:  No, there is no evidence as to that at all. The only

evidence is that the benefits could only go to the

former partners and their irmnediate family and

the Court knows the undertakings were given to the

financier - there would be no change in the structure

and beneficiary to those trusts. So there thus was a

very clear factual basis before the trial judge and

the Appeal Court whereby they could find that nothing

in reality changed. There is no difference and what was being suggested by the defendants was,they could be relieved of what would otherwise be a liability

because of this change in structure of the business.

BRENNAN J: Is there not a change in the structure, though, in

the sense that, up until this time, if there were any

profits to be made from the business it would go to

persons who had lost money, who were being kept out

of the money?

MR GRAY:	Yes.
BRENNAN J:	But from that time onwards, that is not so, is it?
MR GRAY:	It would fall initially on the company and, as
His Honour the Chief Justice says, then derivatively
through to the former partners and their irmnediate
families. There is nobody else to - - -

BRENNAN J: Well, through to the trust and from the trust to

the beneficiaries who took.

MR GRAY:	Yes. Who, to complete the circle, were the recipients under the partnership, namely, the partners and their
immediate family.  The other aspect of the matter is
that their evidence is that they kept all their money
in the business, whether it be a partnership or a
company, and thus they had an asset there in the company where their money lay. Thus, if they had had this overpaid money available to them at day one, that is where it would have been.
DAWSON J:	And the company would have made more profits and

the profits would have been divided through the trust.

MR GRAY:  Yes. Or the company would be represented by the

increased value of the asset they held through the

company.

A1Tl4/l/VH	23/8/88
Hungerfords(2)	77

DEANE J: Well, it all becomes opeculative, does not it,

because, looking at the tax wisdom of all these trusts

and so on, one could speculate that if the company

did make more profits they would have charged the

company interest to avoid the problems of tax through

companies at that stage.

MR GRAY:  Yes. The evidence at trial was that the partners

could not quite understand why they had to pay so much

tax. The evidence was - - -

WILSON J:	They were not alone in that.
MR GRAY:	The evidence was that it was just a problem that they
could not quite master and so they went to Hungerfords for advice as to what could be done about it, not because they were impecunious but because there was
not quite the amount of liquidity they had expected.
Hungerfords said, well, let us look at incorporation.
So, if one follows through the chain of causation
the reason why we have got a company structure here
at all is because of Hungerfords' very neglect in
the first place and, yet again, we have perhaps
underclaimed in that all the costs associated with
incorporation have not formed part of the claim for
damages.  But when looked at in that way the evidence
is quite clear at trial that they actually had to
incorporate in an attempt to improve their liquidity
and, it was out of that very process that, as they
scratched their head and looked in amazement at these bills, the thought crossed their mind, well, maybe
we should talk to somebody else.  They met
Mr Whitbread and, in the space of a very short space
of time, a fresh mind to the problem, and perhaps not blinkered as the other had been, the solution was
seen, but in the process  incorporation was well under
way.

So that is the factual history of the matter and

against that background one can well understand the

trial judge saying to Hungerfords, "Enough is enough;

you cannot possibly raise the incorporation point

against these plaintiffs." When viewed in that light,

it is unconscionable to do so.and that is really the

point that the Chief Justice comes to in his reasons

when he says at the foot of 521 against that background:

The respondents' duty was owed both in contract

and in tort to the appellants and the law would

be in an absurd and unjust state if it prevented

them from recovering the whole loss.

So we answer the suggestion that incorporation in some

way was a factor that denied the plaintiffs the
recovery of their loss by those various means. I

think I have strayed from the strict logic of the

submission a little. If the Court pleases, one

factual matter that is, in our respectful submission,

AlT14/2/VH	78	23/8/88
Hungerfords(2)

important for the Court to understand, is that this

tax, the overpaid tax, came out of the trading

account of the partnership. It was not a case where

the plaintiffs were paying their tax personally out

of their own proper bank account. A Radio Electrix

cheque was used to pay the commissioner and then

debited against the particular partner's account.

So it was money actually taken out of the working

business account of the partnership and when there

was partial recovery, that is where it went, back

into the trading account of the business, this time

being run by the company. It is really that fact,

and that unchallenged fact, that demonstrates the

plaintiffs meant what they said; this is what they

would have done with the money, it would have stayed

in the business.

From an evidentiary point of view, we say the

case really came to this: the plaintiffs swore of

what the nature of their business was and what they

did with all their spare money,into the business,

and the Court can go to the other partner who was called, Michael Walker's evidence, and read about

how he drew out a bare mininum. When he started out as a

partner he was single and he took bare living expenses

and left everything else in the business because

they appreciated that in a spiralling growth that

money was critical to the continued growth of the

business. Peter Walker's evidence to the same effect.

They then swore and were unchallenged that they

would have left the tax~ the overpaid tax, in the

business. No challenge to that. It was not suggested

they had other avenues for expenditure, and they

were accepted as being honest and accurate. ·

Justice Bollen said, "Well, they can say it, looking back. It is easy to say, it is easy to reconstruct."

And he thought that maybe some of the money was being

used somewhere else. The Appeal Court declined to

interfere with that finding of fact. It was challenged

before the Appeal Court unsuccessfully and we challenge

it again before this Court and that gives rise to the
cross appeal.	We say that not only was there that

body of evidence about their general practice, what

they would have done; but then there was the critical

piece of evidence that, what did they do with $140,000?

There it was; this money arrived unexpected.	$140,000
to be divided between six.

There was no question of saying, well, let us

have a holiday or, let us buy the bike that the
children want, or repaint the roof; none of that at all.
It was applied to the business and, against that evidence,

that weight of evidence, and nothing put to the contrary,

why should not their account be accepted? Why should

there be a discount? The discount was more than the

19 per cent my learned friend referred to. The

calculation of the Chief Justice was that $334,000

A1Tl4/3/VH	79	23/8/88
Hungerfords(2)

was required as at 30 November 1986. The judgment

was not handed down until late February the following

year and thus there are three months ongoing

interest to be added in at roughly a little over

$200 a day and so, in actual fact, the loss was

discounted from $360,000 in round terms, to $270,000,
a reduction of 25 per cent, as against the higher

figure and a reduction of a third, as against the

lower figure. So the Chief Justice and the

Full Court made a very substantial reduction on account of the possibility that the plaintiffs would

have departed from their practice and proven practice

of paying all their spare money into the business.

Our short point is, there was no basis for the

• Court to do so; the evidence was all one way. That

takes us back by way of analogy, if the Court pleases,

to the case of MEDDICK V CUTTON & HARVEY. There,

the evidence was, from the elderly couple, we would

have placed our money in the Sun Alliance accumulator

and we would not have withdrawn it, and the Court

allowed the full value. Well, one could say of the

Meddicks, it was possible that they might have

withdrawn it, changed their mind. They swore they

would not, but it is exactly the same position as the

case at bar. We say that, by parity of reasoning,

the plaintiffs in the case at bar are entitled to
recover the full amount of their loss.

DEANE J:	Mr Gray, if you were to succeed all the way an<l on the
incorporation point on the basis that your clients had lost the use of their money, that it was not
a piercing of the veil, but on a broad-brush approach what the company would have earned should be treated
as indicating their loss, what would your reaction be,
if, on all those contingencies, the approach were to be
taken, well, the Full Court taking that broad-brush approach has seen fit to introduce this discount
factor and, if the Court is going to uphold that approach, really, it should just accept it with the
discount built in as part of the justification for it?

MR GRAY: Well, if the Court pleases, we would contend to the

contrary to that approach. We would suggest that that

is a perfectly logical permissive approach if the evidence permitted it. But the plain evidence at trial did not permit that course because the evidence

was all one way. What more could the plaintiffs do?

What more could they put forward to the Court to

satisfy the Court that this is what would have happened?

Does it involve a discount of a quarter in every case?

The plaintiffs ..... would never, in that circumstance,

factually be able to make out a claim for their full

entitlement.	They would always be left with the
'What can be said as to what would have happened ?' 1	possibility "Were it so?", -"Would it be so?-",
We are dealing with the balance of probabilities and
we would say that we are in the circumstances of a

A1Tl4/4/VH	80	23/8/88
Hungerfords(2)

shifting evidentiary onus of proof, if one were to

analyse it in that way. The plaintiffs have put

forward their case; they had satisfied their

evidentiary onus; it was open to the defendant to

produce something, or challenge them in some clear-cut

way. For example, one can imagine a case where the

defence had some evidence that there was a particular

pressing financial need on some of the partners and
to lead such evidence might well entitle the trial

judge to say, well, bearing in mind the need for

money there, perhaps some would have gone there, but

there was nothing of that in this case.

(Continued on page 82)

A1Tl4/5/VH	23/8/88
Hungerfords(2)	81
:tvIR GRAY (continuing):	The evidence of the plaintiffs in

that regard, if the Court pleases, we would like
to take the Court to. It is in book one, page 31,

line 13:

Q. Now, I'd like to ask you a hypothetical

question, Mr Walker, and I'm now addressing a
point of time, for argument's sake, in

March 1976. Had you had available to you

some cash at that time, what would you have done
with it. A. Well, I would have reduced the

indebtedness to Mutual Acceptance because

that was obviously the highest rate of interest

that we were paying and put the money into the

business' rent and capital.

Q. Let me ask you another hypothetical question,

had you, after the 1975/76 tax assessment, had

to pay less tax than you in fact did pay, what

would have happened to the money representing

the difference between the tax you did pay and the

the tax, the lesser amount that should have been

paid. A. Well, we used the company and the

funds in the company -

He here is talking about the partnership as the company -

as our banker, I 3uess, for want of a better word.

I had a current account in there and, as far as I was: concerned, all my monies that I had

available to me were in that current account.

Our tax was paid out of that current account year after year so what would have happened

is that I would have had less money come out

of that current account and, subsequently,

I guess cash flow would have dictated that

we would not have had as much borrowings from

M:utal Acceptance.

Then at page 42, line 15, an answer:

We were putting all the monies that we had

available to us into the business as working
capital because that was the most efficient way

of doing it.

Q. Did you need that working capital at this

time. A. Yes we did because of our high cost

of borrowings.

And a rather leading question at the foot of the

page:

Q. To complete the logic of that. By not

drawing, in effect, against your current

account and leaving a credit there, it had

the effect of reducing the need for the business

to borrow further from Mutual Acceptance.

A. That's correct.

AIT15/l/JM	82	23/8/88
Hungerfords(2)

It is perhaps relevant background for the

Court to know that the evidence was that the

Walker family, in particular the older generation,

was not without funds and in fact were able to

provide finance to help the grandsons in this business venture. So, there was some finance

from family sources as well as the Mutual Acceptance

moneys.

DEANE J: But that evidence leaves an obvious speculative

basis. It is one thing to say, "Oh, if we didn't

have to take the money out to pay tax we would've

left it there." It is another thing to say, "And

if our profits had been substantially more as a

result, we wouldn't have taken a penny more for

our living expenses and so on." It is in that

context really that you have to look at this

discount of 20 per cent, or whatever it is, in

an overall context of doing the best that you can.

MR GRAY:	Yes, well, we say the answer to that, if Your Honour
pleases, is that what happened in 1982 when the
money was available, when $140,000 came through
not a penny of it ·was taken for private purposes.
It was all applied through to the business and
we say that that is absolutely overwhelming evidence
that justifies the plaintiffs' assertion that that
is what would have happened.  It did happen.

DEANE J: That is the 140; we are talking now about the

extra 300,000 that you want.

MR GRAY:	Yes, well, their case was that they were in a
growth spiral. For example, at page 81, in
cross-examination when the matter is raised

DEANE J: All I am really putting to you, Mr Gray, is that

these are areas where this Court should not get

involved unless it is quite apparent that the

factual approach of the Full Court is mistaken

and by these I am suggesting the assessment of

damages by reference to what the profit the

company earned and discounting that assessment in

terms of what might have happened in the context

that people do happen to spend profits quite

often, or some of them, if they have got them

available.

MR GRAY:	But even - well, I can only beg to differ with Your Honour's analysis of it and put the
submission that the evidence was too strong in the
case at bar to allow for that conclusion. All the Full Court did was to say that it was open to Justice Bollen to make the finding that he did.
And so we really come back to that and we really
are striking at Justice Bollen's reasoning and
saying that the facts did not justify that conclusion

AIT15/2/JM	83	23/8/88
Hungerfords(2)

and that they would not have used all the money in

the business. In fact, Justice Bollen simply

spoke of it being possible they might spend

some money on something else. Justice Bollen's

finding in that regard was not a finding on the

probabilities, to my present recollection.

I will just let my learned junior find

that passage. But His Honour found they would have

used the funds in the business, but perhaps

not all.

DEANE J: But, I mean, you keep coming up with complications.

Assume it all in your favour and you have got

the company operating at a profit. It would have
paid 49 cents in the dollar additional tax on

the profits. If it declared dividends, as it

would have had to do, your clients would have

had to pay tax on the dividends and may well have

had to take money from the company on the dividends

to pay the tax. I mean, we are in an area of

tremendous speculation when you come beyond keeping

the extra tax money in the company and dealing with

what would have happened to the profits.

MR GRAY:	There is no intention on the plaintiffs' part
to be not paying tax on any moneys they should pay tax on and that point was made very plain to Justice Bollen at the hearing. There was no
argument based on tax being brought to account, or
GOURLAY's case.  The first time that has been
mentioned is in this Court.
DEANE J:	I was not suggesting a threat that we should
get off in the tax area.  I am just trying to
point out to you the difference that I am drawing
between what they would have done with the tax
that they otherwise would not have had to pay
and what would have happened to the profits, which is what we are really concerned with now.

MR GRAY: Assuming, if I might, that it was appropriate	for the Court to conclude, which, of course, we	challenge, that some of these moneys would not
have stayed in the business, the question then
becomes what would have been done with those
moneys? They may have been invested privately;
they may have been used for the purchase of
an asset. So again, the plaintiffs have
lost the use of those moneys for whatever pursuit
they might follow. So, it is not a question of
simply saying because the moneys did not stay in the business, therefore they would not have been
put to any use. One would, we would say, assume
that it is reasonable to assume the moneys would
be put to their best use. The plaintiffs deposed
to this. If that is not in its entirety, the other use, apart from squandering, is to employ
the moneys either in the acquisition of an asset
or some other investment, or possibly some form
AITlS/3/JM	84	23/8/88
Hungerfords(2)

of personal expenditure, all of which would bring
value to the plaintiffs, and, we say, all of
which would be, in money terms, of greater value

than the highest rate of interest they were paying,

and that this Court should accept that position.

The evidence of Hungerfords on this point

was quite clear. They said that as far as they
were concerned, it was the connnercial connnon sense

of the matter - - -

MASON CJ: Yes, we have been taken to that already.

MR GRAY:	Yes, but in regard to the use to which the moneys
would be put.  We would draw that evidence in
aid in meeting the suggestion that Your Honour Justice Deane puts to us.

(Continued on page 86)

AIT15/4/JM	85	23/8/88
Hungerfords(2)
MASON CJ:	Yes, thank you, Mr Gray.	Yes, Mr Bennett, we

may as well make some use of the next five minutes,

if you could put them to advantage.

MR BENNETT:  Yes, certainly, Your Honour. Your Honours, in

relation to the guarantees, first of all, we would submit

that they do not affect the matter at all, any more than

it affects the matter that they remained principal debtors.

The point we make about incorporation is that one has to

work out who is suffering any continuing loss and if so

what continuing loss. Whoever takes over the Mutual

Acceptance loans, there is no way that a continuing loss

is being made by the individuals of 18, or whatever it is,

per cent, and we say that for two reasons.	First, the
evidence is clear -	and there are findings by both the

trial judge and the Full Court - that the money would

not have been paid to Mutual Acceptance - Your Honours

way over the whole period. What is put against us 1	will recall the loans were never reduced in a capital
in the Full Court is that it would have been used in
the business. f-ind secondly, so far as the business is
concerned, the business is simply no longer the business
of the individuals and one cannot say merely because their
children get some benefit from it and got some benefit
before that the reality of the situation is that it is the same people, any more than one - - -

DEANE J:  But that begs the question, Mr Bennett, does not it?

I mean the loss of the use was the loss of the individual

partners.

MR BENNETT:	Yes.
DEANE J:	The finding is that they would have used it by

investing it with the company.

MR BENNETT:	Yes.
DEANE J:	The question, therefore, is: is that investment to

be treated as something that would have given them no

return or, since they effectively owned the company,

given them some return and, if it would have given them	is the investment to be treated as one which would have
some return, is it a fair enough broad-brush approach to
see what would the company that they and their families
owned have earned from these moneys? Now, that may be
a wrong approach, but I think that is the way it should be put against the contentions you are making, and I think that is what you have to deal with, is not it?

MR BENNETT:  We would submit that first the reduction of

19 per cent, or the higher figure, if one adds the later

interest, that reduction was made merely in relation to

the first part of the issue~ would they, or would they not,

have put it into the company? My friend has raised that

again in relation to the cross appeal and I will deal with

that in due course, but that is where that reduction

comes in. It is not put in as a broad-brush reduction.

A1Tl6/l/HS	86	23/8/88
Hungerfords(2)

Secondly, we submit if it was, if one was going to

have a broad-brush reduction, it would have to be very

much larger. But it would not be practical even to do

that after 1982 because we know that the company

operated for the benefit of many other people and the

plaintiff which has the onus of proof in relation to

damages has not told us what would have been very simple

to have told us. what is the tax structure, where do
the dividends go, what has happened in relation to paying

interest on money lent? And so· on. If those matters were disclosed to us, we could no doubt deal with it,

but that not having been put at all, the plaintiff

then comes and says, "The appropriate thing, my not

having told you who really suffered the damage, is to

take a broad-brush approach and say that I suffered most

of it", and that, we submit, is something he cannot do,

and the correct broad-brush approach, if broad-brush

is the correct word, we would respectfully submit, is

to take the normal interest rule applied by section 30C

of the SUPREME COURT ACT, as Mr Justice Bollen did.

That, we submit - it has some unfairness to us, because

it assumes that there was some continuing loss on the

money after incorporation of the company, but we accept

that - and that, we submit, is a fairer overall approach.

MASON CJ:  Mr Bennett, it may be convenient now to adjourn.

We will adjourn until 10 o'clock tomorrow morning.

AT 4.46 PM THE ~.iATTER WAS ADJOURNED

UNTIL WEDNESDAY, 24 AUGUST 1988

AlT16/2/HS

Hungerfords(2) 87 23/8/88